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July 20, 2020 – Lakeland Tours, LLC and 22 affiliated Debtors (dba WorldStrides, Inc., “Lakeland” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 20-11647. The Debtors, a leading "educational travel and experiences organization," are represented by Nicole L. Greenblatt of Kirkland & Ellis LLP. Further board-authorized engagements include (i) KPMG LP as financial advisors, (ii) Houlihan Lokey Capital, Inc as investment banker and (iii) Stretto as claims agent.
The Debtors’ lead petition more than 100,000 creditors; estimated assets between $1.0bn and $10.0bn (more than the $1.0bn of the approximately $1.271bn of assets is goodwill/intangibles); and estimated liabilities between $1.0bn and $10.0bn (including approximately $768.0mn in funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Globetrotter Co-Investment B LP ($99.4mn "Seller Note"), (ii) James Hall ($2.9mn "Seller Note") and (iii) Anish Rajpara ($1.7mn "Seller Note").
In December 2017, the Debtors were acquired by Eurazeo, a Paris-based private equity house in partnership with Primavera Capital Group, a Chinese investment firm (the latter founded by former Goldman Sachs partner Dr. Fred Wu). See also the corporate structure chart below (or in the Disclosure Statement).
The Charlottesville, VA-based company has been forced by COVID-19 travel restrictions to cancel most of its spring and summer programs, both domestic and international. For many of the more than 100,000 creditors (undoubtedly mostly students and their families) there will be one single question: What happens to my deposit? The Debtors, who look to emerge as a going concern in September, are taking the long view as to brand value and "will provide a refund in full net of the cost that would have been paid (unless already paid) for the Debtors’ travel protection." No small decision given that "the refund policy is anticipated to result in an anticipated $366 million in cash outflow [matching the amount to provided by the expected DIP financing] to satisfy all projected customer refund requests." That said, of the approximately $1.271bn of assets as at the filing date, almost $1.05bn (albeit book value) is goodwill and intangibles.
One caveat as to "full refunds" is that they will be limited to $3,025 per customer, so probably a good call for parents who decided not send the triplets to Florence this summer….
In a statement announcing the filing, the Debtors said: "On July 20, 2020, WorldStrides announced that it has entered into a restructuring support agreement ('RSA') with its lenders and owners for a comprehensive recapitalization plan. The recapitalization will reduce the Company’s debt obligations and provide access to significant new, committed financing to support its business plan going forward, including navigating the COVID-19 pandemic, which has put the student travel and experiential learning industry at a standstill. To implement the recapitalization, WorldStrides has voluntarily filed a prepackaged Chapter 11 plan of reorganization under the United States Bankruptcy Code (the “Plan”).
WorldStrides does not anticipate this will have any impact on the timing of customer refunds [more on refunds below] and expects to continue paying vendors and other partners in full in the ordinary course of business."
Goals of the Chapter 11 Filings
The Disclosure Statement provides: "a comprehensive in-court restructuring of Claims against and Interests in the Debtors that will deleverage the Debtors’ balance sheet, preserve the going-concern value of the Debtors, maximize recoveries available to all constituents, provide for an equitable distribution to the Debtors’ stakeholders based on their respective priorities, and preserve the jobs of the Debtors’ employees."
Restructuring Support Agreement and Plan Overview
On July 8, 2020, holders of approximately 85% of the total amount of Loan Claims arising under the Prepetition Credit Agreement; J. Aron & Company LLC, as holder of “Secured Hedging Obligations” under and as defined in the Prepetition Credit Agreemen; Eurazeo North America; Primavera Capital Management Ltd; and the Debtors entered into a restructuring support agreement (the “RSA,” attached to the Disclosure Statement at Exhibit C), which anticipates:
- New Money and Roll-Up DIP Commitment: Certain of the Consenting Lenders (or their respective designated affiliates) (the “DIP Lenders”) and the Sponsors shall provide a $366.0mn debtor-in-possession ("DIP") financing facility (the “DIP Facility”), comprised of (a) up to $108.0mn million new money term loans provided by the DIP Lenders (the “Lender DIP Loans”) and up to $108.0mn in new money term loans provided by the Sponsors (the “Sponsor DIP Loans”), (b) the “roll-up” into the DIP Facility of $150.0mn of Loan Claims held by certain of the DIP Lenders and (c) the “roll-over” of the Existing Letters of Credit in a face amount of approximately $2 million;
- DIP-to-Exit Financing: The DIP Loans shall be exchanged for the following at exit from Chapter 11: (a) the Lender DIP Loans for the approximately $108.0mn of loans under the priority exit facility (the “Priority Exit Facility”) (plus 20% of the HoldCo Loans), (b) the DIP Roll-Up Loans for the $150.0mn Second Out TLTB Facility, which facility shall be junior in priority to the Priority Exit Facility and senior in priority to the Third Out TLTB Facility, and (c) the Sponsor DIP Loans for 100% of the New Common Stock (subject to dilution by the Management Incentive Plan). Existing letters of credit shall “roll-over” into the Priority Exit Facility and existing hedges will be reinstated.
- Restructuring of Loan Claims: Each Holder of an Allowed Loan Claim (other than those that were exchanged for DIP Roll-Up Loans or in connection with the Existing Letters of Credit) shall receive its pro rata share of and interest in (i) the $200.0mn Third Out TLTB Facility, which facility shall be junior in priority to both the Second Out TLTB Facility and (ii) the Pro Rata HoldCo Loans.
- Cancellation of Seller Notes, Existing Equity Interests, and Subordinated Claims:
- The approximately $126.0mn of outstanding Seller Notes will be cancelled and terminated, and shall be of no further force and effect, and there shall be no distributions to Holders of Seller Notes under the Plan;
- The Existing Equity Interests (other than Intercompany Interests) will be cancelled;
- All Subordinated Claims will be discharged, cancelled, released, and extinguished;
- No Impairment of Other Claims; Trade Partners Unaffected:
- Unless otherwise set forth in the Plan, any outstanding and undisputed General Unsecured Claims as of the Petition Date will be paid in full in Cash or receive such other treatment that renders such Claims Unimpaired; and
- All Administrative Claims, Priority Tax Claims, and Other Secured Claims will be paid in full in Cash or receive such other treatment that renders such Claims Unimpaired.
The Disclosure Statement provides: “The Debtors do not have one sweeping refund policy, as each business line has its own refund policy. However, in general (including for the K12 trips), if a trip has been cancelled due to the COVID-19 pandemic, the Debtors will provide a refund in full net of the cost that would have been paid (unless already paid) for the Debtors’ travel protection. Reimbursement payment timing is not dependent on the date the reimbursement was requested; rather, it is subject to the originally planned trip departure date, with the average refund remitted after the original scheduled departure. Accordingly, refunds are expected to peak in August and September 2020, with anticipated total refund outflows of approximately $82 million and $72 million, respectively.
Although WorldStrides may generate long-term rewards from the refund policy, including decreased potential litigation risks and increased goodwill and customer loyalty towards the WorldStrides brand, the refund policy is anticipated to result in an anticipated $366 million in cash outflow to satisfy all projected customer refund requests.
The following is a summary of classes, claims, voting rights and estimated recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below)
- Class 1 (“Secured Tax Claims”) is unimpaired and not entitled to vote on the Plan.
- Class 2 (“Other Secured Claims”) is unimpaired and not entitled to vote on the Plan.
- Class 3 (“Other Priority Claims”) is unimpaired and not entitled to vote on the Plan.
- Class 4 (“Loan Claims”) is impaired and entitled to vote on the Plan. Estimated claims are $642.0mn and estimated recovery is 85%. Solely on account of Loan Claims; does not reflect any recoveries in respect of the Lender DIP Loans.
- Class 5 (“General Unsecured Claims”) is unimpaired and not entitled to vote on the Plan. Estimated claims are $6.0mn. This amount includes trade claims due and owing as of the Anticipated Petition Date. For the avoidance of doubt, this does not include any customer deposits that may be refunded or deferred.
- Class 6 (“Seller Notes Claims”) is impaired and entitled to vote on the Plan. Estimated claims are $126.0mn and estimated recovery is 0%.
- Class 7 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Expected recovery is 100%/0%.
- Class 8 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Expected recovery is 100%/0%.
- Class 9 (“Existing Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Estimated recovery is 0%.
- Class 10 (“Subordinated Claims”) is impaired, deemed to reject, and not entitled to vote on the Plan. Estimated recovery is 0%.
Prepetition and Emergence Capital Structure
Events Leading to the Chapter 11 Filing
The Debtors provide: "The Debtors have historically enjoyed a stable position as a market leader in educational travel. Like much of the travel industry, however, the Debtors’ businesses were decimated by the spread of the novel coronavirus COVID-19 and the attendant global shutdown on nonessential travel beginning in early March 2020. Although the Debtors have a strong long-term outlook when taking into account pre-COVID-19 historical operating performance, the Debtors’ business has suffered from stalled revenue stemming from the Debtors’ inability to operate tours during what otherwise would be the peak of the 2020 travel season, as well as liquidity challenges created by the Debtors’ refund policy for customer deposits, which is important to both avoid litigation risk and to maintain customer goodwill to ensure the Debtors’ viability as a go-forward business. These specific factors, as well as additional pressures on the Debtors’ businesses caused by the COVID-19 pandemic, have resulted in a projected approximate $200 million liquidity need over the next 24 months."
As of July 14, 2020, the Debtors have approximately $768.0mn in total funded debt obligations consisting primarily of approximately (a) $642.0mn arising under their senior secured Prepetition Credit Agreement (including letter of credit obligations) and approximately $126.0mn in unsecured, subordinated Seller Notes.
Liquidation Analysis (see Exhibit F to Disclosure Statement for notes)
The following documents were attached to the Disclosure Statement:
- Exhibit A: Plan of Reorganization
- Exhibit B: Corporate Structure of the Debtors
- Exhibit C: Restructuring Support Agreement
- Exhibit D: Financial Projections
- Exhibit E: Valuation Analysis
- Exhibit F: Liquidation Analysis
About the Debtors
According to the Debtors: "WorldStrides is an educational travel provider, organizing educational travel and other experiential learning programs both domestically and abroad. As the United States’ largest accredited travel program, WorldStrides provides educational travel and other experiential learning programs for more than 550,000 K12 through graduate students annually, partnering with more than 7,000 K12 schools and 800 universities. In addition to providing domestic and international study abroad programs, WorldStrides also offers other immersive learning programs."
Corporate Structure Chart
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