PBS Brand Co., LLC – Seeks $6.5mn New Money DIP Financing ($1.5mn Interim) from an Affiliate of Sortis Holdings, Inc. which Recently Launched a COVID-Inspired Rescue Fund

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December 22, 2020 – The Debtors requested Court authority to (i) access $6.5mn of debtor-in-possession (“DIP”) financing (including up to $1.5mn on an interim basis) and (ii) use of cash collateral [Docket No. 11]. 

The DIP financing is being provided by prepetition lender PBS DIP Lender, LLC (an affiliate of Sortis Holdings, Inc. or "Sortis") in two tranches: (i) a $6.175mn senior secured facility (“Tranche A”) and (ii) a $350k junior secured facility (“Tranche B”), with interim availability capped at $1.5mn across the two term loans.

Prior to filing for bankruptcy protection (December 10th), the Debtors received a $261.5k bridge loan from Sortis which had been contacted by the Debtors' investment banker in connection with a possible out-of-court sale transaction, with Sortis then declining to pursue an acquisition in an out-of-court context. 

Sortis recently formed "The Sortis Rescue Fund…to capitalize on the dislocation and market stress caused by the COVID-19 pandemic and subsequent economic fallout. The current recession is proving to be deep and intense enough to create situational distressed opportunities, particularly in hospitality, retail, office, and select operating businesses. The SRF does not make broad market acquisitions but rather rescues and acquires specifically targeted distressed assets in situations with strong value enhancement."

The Debtor’s DIP financing motion [Docket No. 11] notes, “After significant discussions and negotiations at arm’s-length, the Debtors and the DIP Lender have reached an agreement on the terms of the DIP Facility, as set forth below, which will provide financing, on an interim basis, in two separate tranches: the first, Tranche A is for operating costs, which include payroll and payroll related expenses, rent, utilities, insurance, tax, and other ordinary course necessary business expenses (‘Tranche A Expenses’). Tranche B is for payment of non-operating disbursements, such as restructuring professionals, the DIP Lender’s professionals, the Claims and Noticing Agent, and fees of the United States Trustee (‘Tranche B Expenses’)… Further, the rate of interest is appropriately different as between the two tranches based upon their risk: The non-default interest rate for loans made on account of Tranche A Expenses is LIBOR + 9% per annum (or, if less, at the highest rate then permitted by applicable law), and the non-default interest rate for loans made on account of Tranche B Expenses is 18% per annum (or, if less, at the highest rate then permitted by applicable law), provided that upon entry of the Final Order, DIP Loans under Tranche B shall bear interest at the Tranche A Interest Rate, effective retroactive to the Petition Date. The interest under the DIP Facility will accrue during the Chapter 11 Cases but will not be payable until the Maturity Date. The DIP Term Sheet also provides for a Commitment Fee and an Exit Fee. 

The Commitment Fee is 5% on the DIP Facility Commitment amount, to be fully earned and accrued upon entry of the Interim Order, and payable upon the earlier of (a) any prepayment, repayment or refinancing of the DIP Facility and (b) the consummation of a sale of the DIP Collateral, provided that upon entry of the Final Order the Commitment Fee shall be reduced to 3%. The Exit Fee is 2% on all funded amounts and outstanding commitments under the DIP Facility, payable upon the earlier of (a) any prepayment, repayment or refinancing of the DIP Facility, and (b) the consummation of a sale of the DIP Collateral, provided that upon entry of the Final Order the Exit Fee shall be reduced to 1%.

The Debtors are in need of an immediate additional infusion of liquidity to, among other things, pay employee wages and benefits, continue the Debtors’ insurance policies, and make rent payments that are or will shortly become due. The Debtors anticipate exiting from bankruptcy no later than the end of April, and therefore the Debtors undertook an examination of their needs for that period. The result was an 18-week cash flow forecast to take them through the confirmation process. The Debtors have determined that they will have additional net cash needs of approximately $1,500,000 during the first three weeks of the case, and $6,525,000 during the first eighteen weeks of the Chapter 11 Cases.”

Key Terms of the DIP Facility:

  • Borrowers: The Debtors, jointly and severally.
  • DIP Lender: PBS DIP Lender, LLC,
  • Commitment: Up to $6.525mn under a multi-draw term loan DIP Facility composed of (i) a $6.175mn senior secured facility (“Tranche A”) and (ii) a $350k junior secured facility (“Tranche B”), with such amount prior to entry of a Final Order not to exceed $1.5mn (Interim DIP).
  • Interest Rates: 
    1. Tranche A Interest shall accrue on the DIP Loans under Tranche A at the rate of LIBOR + 9% per annum (or, if less, at the highest rate then permitted by applicable law) (the “Tranche A Interest Rate”).
    2. Tranche B Interest shall accrue on the DIP Loans under Tranche B at the rate of 18% per annum (or, if less, at the highest rate then permitted by applicable law) (the “Tranche B Interest Rate”), provided that upon entry of the Final Order, DIP Loans under Tranche B shall bear interest at the Tranche A Interest Rate, effective retroactive to the Petition Date.
    3. All DIP Loans Accrued, unpaid interest shall be paid by the Debtors to the DIP Lender on the Maturity Date.
  • Default Interest Rate: 5% in excess of the Tranche A Interest Rate and Tranche B Interest Rate, respectively.
  • New Money: $6.525mn
  • Roll-Up: None
  • Fees:
    • Commitment Fee: 5% on the DIP Loan Facility commitment amount, to be fully earned and accrued upon entry of the Interim Order, and payable upon the earlier of (a) any prepayment, repayment or refinancing of the DIP Facility and (b) the consummation of a sale of the DIP Collateral., provided that upon entry of the Final Order the Commitment Fee shall be reduced to 3%.
    • Exit Fee: 2% exit fee on all funded amounts and outstanding commitments under the DIP Facility, payable upon the earlier of (a) any prepayment, repayment or refinancing of the DIP Facility, and (b) the consummation of a sale of the DIP Collateral., provided that upon entry of the Final Order the Exit Fee shall be reduced to 1%.
  • Term/Maturity: The earliest of (a) May 15, 2021 (or such later date as the DIP Lender in its sole discretion may agree in writing with the Debtors); (b) acceleration of the DIP Loans pursuant to this Term Sheet or the Financing Orders; (c) 40 days after entry of the Interim Order (or such later date as the DIP Lender in its sole discretion may agree in writing with the Debtors) if the Final Order has not been entered and become a final, non-appealable order on or prior to the expiration of such 40- day period; (d) the consummation of a sale of all or substantially all of the assets of the Debtors; and (e) the effective date of a plan of reorganization filed in the Chapter 11 Cases that is confirmed pursuant to an order entered by the Bankruptcy Court and to which the DIP Lender consents in its sole and absolute discretion.
  • Use of Proceeds: The proceeds of the DIP Loans under Tranche A and the Cash Collateral shall be used, consistent with the Budget for working capital and general corporate purposes. The proceeds of the DIP Loans under Tranche B shall be used, consistent with the Budget, for bankruptcy-related costs and expenses.
  • Milestones:Unless waived by the DIP Lender in its sole discretion, the failure of the Debtors to meet the following milestones shall constitute an Event of Default:
    • Deadline to file Plan: February 15, 2021
    • Deadline for Plan confirmation order: April 30, 2021
    • Deadline for Plan effectiveness: May 15, 2021

DIP Budget (See Exhibit B to Docket No. 11)

About the Debtors

According to the Debtors: "Punch Bowl Social is the first experiential food and beverage brand to bring a made-from-scratch menu and craft beverages together with social gaming in one design-forward environment. Punch Bowl Social was named as one of Fast Company’s 2019 Top 50 Most Innovative Companies in the World, a Nation’s Restaurant News Hot Concept in 2018, among more than a dozen other national and regional awards. Punch Bowl Social serves weekend brunch, lunch, dinner and late-night snacks alongside a variety of creative punches, local microbrews and craft non-alcoholic beverages."

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