June 9, 2023 – Privately held Lucky Bucks LLC and two affiliated debtors (together “Lucky Bucks” or the “Debtors*”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case No. 23-10758 (Judge TBD). The Debtors, "among the largest Class B coin operated amusement machine ('COAM') operators based in the state of Georgia," are represented by Russell C. Silberglied of Richards, Layton & Finger P.A. Further Board authorized appointments include: (i) Milbank LLP as general bankruptcy counsel, (iii) M3 Advisory Partners, L.P. as financial advisors, (iv) Evercore Group L.L.C as investment bankers and (v) Epiq Corporate Restructuring, LLC as claims agent.

* Prior to 2020, the Debtors’ then ultimate parent company, Seven Aces Limited, was a public company with shares listed on the Toronto Stock Exchange. In August 2020, an affiliate of private equity house Trive Capital ('Trive') acquired substantially all of the outstanding equity of Seven Aces and currently holds @75% of the Debtors' equity via three affiliates. The balance of the Debtors' equity is held by the Debtorts' founder Mr. Anil Damani. In May 2020, as part of a settlement with the GLC for a violation of certain Georgia laws relating to COAM operation, Mr. Damani stepped down as an officer of Lucky Bucks, but, at the time, LBVI continued to hold a 30% equity interest. This interest was subsequently reduced to 25% in October 2020.

As noted below, two of the three Debtors (Lucky Bucks, LLC and Lucky Bucks HoldCo) are together the "OpCo Debtors" in respect of which a "prepackaged" Plan has been filed, with the third Debtor (Lucky Bucks Holdings LLC or "Holdings") subject to a Plan of liquidation. The two Plans are for the moment included in one document.

The Debtors’ lead petition notes between 50 and 100 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $500.0mn and $1.0bn ($610.0mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Fisher & Phillips ($213k litigation claim), (ii) Bennett Jones ($211k professional services claim) and (iii) Greenberg Traurig, LLP ($171k professional services claim).

Goals of the Chapter 11 Filing

The Disclosure Statement provides: "The Debtors commenced these Chapter 11 Cases to deleverage the OpCo Debtors’ balance sheet and continue the OpCo Debtors’ business as a going concern…"

Plan Overview

The Disclosure Statement provides: "The Plan contemplates the reorganization of the OpCo Debtors [ie Lucky Bucks, LLC and Lucky Bucks HoldCo] either through the Sale Transaction(s) or through a Stand-Alone Restructuring Transaction, and the winding-down of Holdings.

The Debtors’ Plan comprises (i) a prepackaged, pre-solicited plan of reorganization for the OpCo Debtors (the 'OpCo Plan'), and (ii) a plan of liquidation for Holdings [ie Debtor Lucky Bucks Holdings LLC] (the 'Holdings Plan'). The OpCo Plan and the Holdings Plan are included in one document, which may be severed at the option of the Required Consenting Prepetition Lenders (in consultation with the Consenting RC Ad Hoc Group Lenders), if the Court does not approve Holdings Settlement Motion and confirm the Holdings Plan by the earlier of (i) ten (10) weeks from the Petition Date, and (ii) the date all applicable regulatory approvals necessary for the effectiveness of the OpCo Plan are obtained (the “Severance Trigger Date”); provided, that the Severance Trigger Date shall be the earlier of (i) eight (8) weeks following the Petition Date, and (ii) the date all applicable regulatory approvals necessary for the effectiveness of the OpCo Plan are obtained, in the event the GLC indicates it may not consider the application for regulatory approval until after confirmation of the OpCo Plan.

The OpCo Plan contemplates the simultaneous pursuit of (i) a stand-alone reorganization of the OpCo Debtors (a 'Stand-Alone Restructuring Transaction') in which the holders of Prepetition OpCo First Lien Claims shall receive, on account of such Prepetition OpCo First Lien Claims: (i) 100% of the New Reorganized OpCo Debtor Equity, subject to dilution for any New Reorganized OpCo Debtor Equity issued in connection with (a) Lender Equity Allocation in connection with the OpCo Exit Facility (as defined below), (b) any New Reorganized OpCo Debtor Equity allocated to the Rolled Term Loans (as defined below), and (c) any MIP (including
on account of any Emergence Awards), and (ii) an amount of Second-Out Priority Exit Term Loans equal to (x) the total Second-Out Priority Exit Term Loan principal amount less (y) the amount required to refinance the Rolled Term Loans and (ii) a sale of all or substantially all of the OpCo Debtors’ assets or the equity in the Reorganized OpCo Debtors pursuant to Bankruptcy Code section 363 (a 'Sale Transaction'). Specifically, in a Stand-Alone Reorganization Scenario, the following terms shall apply:

1. on the OpCo Plan Effective Date, the Reorganized OpCo Debtors shall incur a new first lien term loan facility in the aggregate principal amount of up to $104.5 million (the 'OpCo Exit Facility'), pursuant to certain agreed terms, consisting of two tranches of term loans (the 'OpCo Exit Term Loans'); and 
2. up to 8 to 10% of the value of New Reorganized OpCo Debtor Equity, as of the OpCo Plan Effective Date, on a fully diluted basis, shall be issuable in connection with the MIP, the terms and conditions of which shall be determined by the New Board. 

Prior to the OpCo Plan Effective Date, the Required Consenting Lenders may allocate a portion of the MIP as emergence grants to recruit individuals selected to serve in key senior management positions after the OpCo Plan Effective Date.

In furtherance of the Sale Transaction(s), in accordance with the Restructuring Support Agreement, and in consultation with the Consenting Lenders, the Debtors have commenced a prepetition marketing process. In connection therewith, the Restructuring Support Agreement includes terms related to the potential sale of the OpCo Debtors’ assets or the equity in the Reorganized OpCo Debtors, including terms of an Acceptable Sale and Bidding Procedures.

The Plan also provides that:

• The OpCo Debtors have agreed to forgo any recovery on account of the OpCo Intercompany Claims, in light of Holdings’ agreement to satisfy all fees and expenses, including any Professional Fee Claims, of an official committee of unsecured creditors (if any is appointed in these Chapter 11 Cases) and the OpCo Debtors’ provision of the OpCo Holdings DIP Tranche to help fund Holdings’ Chapter 11 Case.
• If the Holdings Settlement Motion is approved, Holdings PIK Note Claims will receive the Holdings Settlement Consideration received pursuant to the Holdings Settlement Agreement with the OpCo Debtors foregoing any recovery in connection therewith on account of the OpCo Intercompany Claim.
• The OpCo Debtors’ General Unsecured Creditors shall be paid in full, in Cash. As noted above, the OpCo Debtors will be filing contemporaneously with the commencement of the Chapter 11 Cases the OpCo GUC Motion, whereby the OpCo Debtors are seeking authority to pay all outstanding OpCo General Unsecured Claims against their Estates. To the extent that such OpCo GUC Motion is approved, the OpCo Debtors do not believe a substantial amount of such claims will exist on the OpCo Plan’s Effective Date."

The following is a summary of classes, claims, voting rights and expected recoveries of “Holdings” and “OpCo Debtors” (defined terms are as defined in the Plan and/or Disclosure Statement, also see the Liquidation Analysis below):

Holdings

• Class 1A (“Holdings PIK Note Claims”) is impaired and entitled to vote on the Plan. Each such holder shall receive its Pro Rata share of the Holdings Settlement Consideration remaining after the payment in full in Cash of (i) any portion of the Holdings DIP Facility paid from the Holdings Settlement Consideration in accordance with Article II.D of the Plan, (ii) Administrative Claims against Holdings to the extent not paid by the Holdings DIP Facility, and (iii) the funding of the Holdings Wind-Down Escrow Account.
• Class 2A (“Holdings Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 3A (“Holdings Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 4A (“Existing Holdings Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.

OpCo Debtors

• Class 1B (“OpCo Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 2B (“OpCo Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3B (“Prepetition OpCo First Lien Claims”) is impaired and entitled to vote on the Plan. Except to the extent a holder of a Prepetition OpCo First Lien Claim agrees to a less favorable treatment, in full and final satisfaction of such Claims: 
  • (i) Stand-Alone Restructuring Scenario: In a Stand-Alone Restructuring Scenario, each holder of a Prepetition OpCo First Lien Claim shall receive on account of such Prepetition OpCo First Lien Claim its Pro Rata share of (i) 100% of the New Reorganized OpCo Debtor Equity, subject to dilution for any New Reorganized OpCo Debtor Equity issued in connection with (a) the Lender Equity Allocation in connection with the OpCo Exit Facility, (b) any New Reorganized OpCo Debtor Equity allocated to the Rolled Term Loans, if applicable, and (c) any MIP (including on account of any Emergence Awards), and (ii) receive an amount of Second-Out Priority Exit Term Loans equal to (x) total Second-Out Priority Exit Term Loan principal amount less (y) the amount required to refinance the Rolled Term Loans; or
  • Sale Scenario: In a Sale Scenario, each holder of a Prepetition OpCo First Lien Claim shall receive on account of such Prepetition OpCo First Lien Claim its Pro Rata share of the Sale Proceeds remaining after satisfaction of the OpCo DIP Claims.
• Class 4B (“OpCo General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 5B (“OpCo Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 6B (“OpCo Intercompany Claims”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan.
• Class 7B (“OpCo Intercompany Interests”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan.
• Class 8B (“OpCo Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.

Key Documents

The Disclosure Statement [Docket No. 4] attaches:

• Exhibit 1: Plan of Reorganization
• Exhibit 2: Corporate Structure Chart
• Exhibit 3: Financial Projections
• Exhibit 4: Valuation Analysis
• Exhibit 5: Liquidation Analysis (begins on page 238 of DS)

Proposed Key Dates

• Voting Deadline for Holdings Plan: July 10, 2023
• Voting Deadline for OpCo Plan: June 8, 2023
• Plan Supplement Filing Deadline: July 10, 2023
• Confirmation Objection Deadline: July 17, 2023
• Combined Hearing: July 24, 2023

Restructuring Support Agreement

The Disclosure Statement provides: "…on June 8, 2023, following substantial good faith, arm’s length, and hard fought negotiations, the Company entered into the Restructuring Support Agreement with the Consenting Parties who, as of the date of execution of the Restructuring Support Agreement (the 'RSA Date'), hold, own or control approximately 93% of the aggregate principal amount of the term loans outstanding under the TL Facility and 18% of the aggregate principal amount of the revolving loans outstanding under the RC Facility and (ii) the Sponsors, in the aggregate, hold, own or control 100% of the Interests in Holdings."

DIP Financing

The Restructuring Support Agreement provides the terms for debtor-in-possession ("DIP") financing facilities for the OpCo Debtors (the 'OpCo DIP Facility') and Holdings (the 'Holdings DIP Facility'). Certain holders of Prepetition OpCo First Lien Claims (the 'OpCo DIP Lenders') shall provide the OpCo Debtors with the OpCo DIP Facility, which shall be a senior secured postpetition priming facility consisting of (i) up to $20.5mn of new money term loans and (ii) up to $61.5mn of existing term loans outstanding under the Prepetition OpCo First Lien Credit Agreement that are converted on a dollar for dollar basis into the OpCo DIP Facility (the 'Rolled Term Loans')…TCFIII Luck Funding LLC (“Luck Funding”) or one of its affiliates, and the OpCo Debtors shall provide the Holdings DIP Facility, which shall be in an amount not to exceed $4.0mn in the aggregate.

Events Leading to the Chapter 11 Filing

The Disclosure Statement provides: "…numerous macro-economic challenges in 2022 significantly impacted its business and financial performance. In particular, rising interest rates, an end to federal stimulus programs implemented in response to the COVID-19 epidemic, and historic inflation negatively affected the discretionary income of COAM customers and the associated demand for COAM gaming. The OpCo Debtors were particularly impacted by the sharp rise in the interest rates because of the floating interest rate under the Prepetition OpCo First Lien Credit Agreement.

Lucky Bucks and other MLHs were also adversely impacted by increased regulatory enforcement within the COAM industry. In particular, the GLC began to more rigorously enforce the requirements that Location Owners may not derive more than 50% of their total gross monthly retail receipts from COAM machines (the “50 Percent Rule”) and the prohibition of cash redemptions. Although the Location Owners, rather than the OpCo Debtors, were responsible for these violations, the suspension or revocation of Location Licenses by the GLC resulted in the removal of approximately 360 of Lucky Bucks’ COAMs during 2022 and approximately 65 year-to-date as of May 31, 2023. Such increased enforcement adversely impacted all of the MLHs in the industry, including Lucky Bucks.

The confluence of macroeconomic challenges and regulatory enforcement created a 'perfect storm' in 2022 that resulted in a sharp decline in Lucky Bucks’ COAM revenue. Moreover, as the Company’s competitors were experiencing the same problems, increased competition for Location Contracts ensued, which led to predatory behavior by smaller MLHs, such as 'inducement,' whereby MLHs offer compensation to Location Owners to incentivize them to terminate existing contracts with their competitors. Such inducements have led to significant “churn” among the Location Contracts, with certain MLHs offering Location Owners an ever-increasing economic incentive to switch between MLHs. This behavior further exacerbated negative operating trends experienced by larger market participants, including Lucky Bucks."

Prepetition Indebtedness

As of the Petition Date, the OpCo Debtors have outstanding funded debt obligations in the aggregate principal amount of approximately $610.0mn, consisting of (i) approximately $554.0mn of secured debt under the TL Facility, plus applicable interest, premiums (if any), costs, fees, expenses and other obligations and (ii) approximately $56.0mn of secured debt under a RC Facility (as defined below), plus applicable interest, premiums (if any), costs, fees, expenses and other obligations. In addition, Holdings has outstanding funded debt obligations in the aggregate principal amount of approximately $293.0mn, consisting of the Holdings PIK Notes."

As of the Petition Date, @$1.174 million is owed to various trade creditors.

Key Prepetition Shareholders

• Trive Capital Management LLC 75%
• Lucky Bucks Ventures, Inc. 25%

Key Documents

The Disclosure Statement [Docket No. 4] attaches:

• Exhibit 1: Plan of Reorganization
• Exhibit 2: Corporate Structure Chart
• Exhibit 3: Financial Projections
• Exhibit 4: Valuation Analysis
• Exhibit 5: Liquidation Analysis (begins on page 238 of DS)

About the Debtors

According to the Debtors: “Lucky Bucks ('LB') is a digital skill-based coin operated amusement machine (COAM) route operator based in and incorporated under the laws of the State of Georgia in the U.S. LB is the holder of a Master License, and our machines are fully licensed and governed by the Georgia Lottery Corporation and offer players a variety of digital skill-based coin-operated amusement machines. LB’s growth has outpaced the broader COAM gaming market in Georgia, and is now a leading operator with one of the largest and fastest growing footprints in the market.“

Corporate Structure Chart

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