RTI Holding Company, LLC – Notifies Court of February 24th Effectiveness Date for Second Amended Chapter 11 Plan; 209 Go-Forward Locations Culminate Dramatic Three-Year Drop of Footprint From Almost 600

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February 25, 2021 – The Debtors notified the Court that their Second Amended Chapter 11 Plan had become effective as of February 24, 2021 [Docket No. 1163]. The Court had previously confirmed the Debtors’ Plan, as modified on February 17, 2021 [Docket No. 1144].

On October 7, 2020, privately-held RTI Holding Company, LLC and 50 affiliated Debtors (dba Ruby Tuesday; “RTI” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-12456. At filing, the Debtors, owners and franchisors of the Ruby Tuesday brand restaurants, noted estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. In a subsequently filed Schedule A/B, the lead Debtor noted Unknown of assets and $280,690,944.37 of liabilities [Docket No. 435].

The Debtors were represented by (i) Pachulski Stang Ziehl & Jones LLP as bankruptcy counsel (ii) CR3 Partners, LLC as financial advisor, (iii) FocalPoint Securities, LLC as investment banker, (iv) Hilco Real Estate, LLC, as lease restructuring advisor and (v) Epiq Corporate Restructuring as claims agent.

The deadline for filing requests for payment of Administrative Expense Claims is 30 days after the Effective Date (ie March 27, 2021 although that falls on a Saturday) and for Professional Fee Claims is 45 days after the Effective Date (ie April 11, 2021, although that falls on a Sunday).

In a press release announcing the emergence, the former Debtors stated: "The bankruptcy allowed Ruby Tuesday to shed liabilities, including leases from closed locations that were significantly impacted by COVID-19, and to strengthen its core business of 209 corporate-owned and operated locations. The successful emergence from Chapter 11 will allow Ruby Tuesday to reinforce the brand’s commitment to its existing guests, while continuing to develop virtual 'delivery-only' brands to capitalize on its core strengths and increased off-premise business as part of the company’s long-term growth plan."

Those 209 go-forward locations represent a dramatic downsizing over the last three years.  At the time of NRD Capital's acquisition of the Debtors in December 2017, the Debtors had 596 Ruby Tuesday restaurants (541 owned and 55 franchised); those number continued to fall prior to the Debtors' Chapter 11 filing, with reports suggesting that the Debtors had "quietly closed" 150 locations during 2020.

Plan Overview

The Debtors' memorandum of law in support of Plan confirmation (the "Memorandum") [Docket No. 1109] provides the pre-confirmation hearing state-of-play including in respect of the Global Settlement: "The Debtors commenced their chapter 11 bankruptcy cases in the midst of a global pandemic that has resulted in tremendous loss of life and significant economic damage, including the evisceration of the restaurant industry. In an effort to restructure their business operations during this time of uncertainty, the Debtors and Prepetition Secured Creditors entered into a Restructuring Support Agreement ('RSA'), the terms of which were memorialized in the Plan. The Plan contemplated a dual path whereby the Debtors would either emerge from these chapter 11 proceedings under new ownership by the Prepetition Secured Creditors (the 'Restructuring’) or sell their assets as a going concern (the 'Sale'). No Topping Bids were received prior to the Bid Deadline established by the Bid Procedures Order, January 14, 2021 at 5:00 p.m. (Prevailing Eastern Time), and, therefore, the Debtors are proceeding with their Restructuring.

The Debtors, the Prepetition Agent, Prepetition Secured Creditors, the DIP Lenders, the Creditors’ Committee, and the Equity Parent have negotiated the terms of a Plan settlement term sheet (the 'Plan Settlement Term Sheet') that modifies the terms of the Debtors’ Restructuring for the benefit of general unsecured creditors. It memorializes a global settlement ('Global Settlement') among such parties. Under such Global Settlement, the Holders of Class 4 General Unsecured Claims shall receive their Pro Rata shares of (a) $5,000,000, consisting of (i) payment of $3,000,000 (consisting of an initial $2,000,000 payable within 60 days of the Effective Date, unless extended, plus a Deferred Cash Payment payable by March 31, 2022, unless extended, of $1,000,000, reduced by any Excess Cash Payments received) and (ii) a Note in the principal amount of $2,000,000, reduced by any Excess Cash Payments received; and (b) 33% of the proceeds from the Interchange Claim, which is a claim in a class action lawsuit captioned as In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.

The Second Amended Plan [Docket No. 1093] now provides, “The Plan, as originally proposed, reflected the agreement reached among the Debtors and Prepetition Secured Creditors to follow a dual path whereby the Debtors will either reorganize via a consensual transaction that would provide for the Debtors to emerge from these chapter 11 proceedings under new ownership by the Prepetition Secured Creditors or sell their assets as a going concern.  Following an extensive marketing process, the Debtors did not receive sufficient Qualified Bids to sell the Debtors’ assets and pay the Prepetition Secured Debt Claims and DIP Facility Claims in full.

The Debtors and the Prepetition Secured Creditors believe that the financial restructuring, the operational restructuring (through, among other things, focused lease rejections) and the other transactions reflected in the Plan would position the Reorganized Debtors, Reorganized RTI and RT Lodge Company well to succeed post-emergence from bankruptcy. With a sustainable business plan and adequate operating liquidity, the Reorganized Debtors will be positioned to compete more effectively in the challenging casual dining industry.   

Following extensive negotiations, the Debtors, Prepetition Secured Creditors, the Creditors’ Committee and NRD reached a settlement to provide for greater recoveries to Class 4, comprised of General Unsecured Claims.  Pursuant to the Plan, the operations of the Debtors will be bifurcated.  Specifically, all of RTI’s operating assets other than the RT Lodge (as such term is defined below) and interests in its subsidiaries (other than RTI) shall be transferred to RT Asset Company, which shall be owned after the Effective Date by Holders of Allowed Subclass 3B Claims, and, potentially, Allowed Subclass 3A Claims, subject to dilution.  Also, pursuant to ARTICLE III.C.3.c, the Debtors will transfer to each Holder of an Allowed Subclass 3A Claim its Pro Rata share of one hundred percent (100%) of the Equity Interests in RT Lodge Company, which shall retain the RT Lodge through its subsidiary Reorganized RTI.”

The following is an updated summary of classes, claims, voting rights and expected recoveries showing changes in bold (defined terms are as defined in the Plan and/or Disclosure Statement):

  • Class 1 (“Non-Tax Priority Claim”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 – $770,331 and the estimated recovery is 100%.
  • Class 2 (“Miscellaneous Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0.50mn and the estimated recovery is 100%.
  • Class 3 (“Prepetition Secured Debt Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $37.91mn and estimated recovery is N/A. On the Effective Date, (1) unless the holders of the DIP Facility Claims and Prepetition Secured Debt Claims have been paid in full previously from Net Sale Proceeds, each holder of a Subclass 3A Claim will receive its Pro Rata share of (i) the GS Cash Payment, (ii) at the election of GS in its sole discretion, either the GS Adjustment Equity or the GS Unsecured Note, and (iii) one hundred percent (100%) of the equity in RT Lodge Company which will own Reorganized RTI on the Effective Date; and (2) unless it has been paid in full previously from Net Sale Proceeds, each holder of an Subclass 3B Claim will receive its Pro Rata share of (i) the TCW Cash Payment and (ii) one hundred percent (100%) of the equity in RT Asset Company less any GS Adjustment Equity, subject to dilution on account of the Warrants and management incentive plan, with all such entities, distributions and transfers subject to ARTICLE V.P and the definition of Restructuring in ARTICLE I.C hereof. For avoidance of doubt, Class 3 shall be a Vacant Class if the Prepetition Secured Debt Claims have been paid in full from Net Sale Proceeds before the Effective Date, and the subsections a – e of this ARTICLE III.C.3 (other than the immediately preceding sentence and this sentence) shall no longer be operative. If Class 3 shall be come a Vacant Class, then in addition all of the provisions of the Plan related to ARTICLE III.C.3.c shall not be operative, including (without limitation) provisions that implement or reference exit financing or the assumption of executory contracts and unexpired leases of the Debtors, unless such contracts and/or leases are listed on a schedule to the Plan Supplement.

Notwithstanding the foregoing, GS and TCW may voluntarily reduce or defer their distributions under this Article III.C.3 or may otherwise modify the treatment of their Claims under this Article III.C.3 to roll obligations into the Exit Facility to provide for additional liquidity of the Debtors (the “Increased GS and TCW Impairment”) to satisfy, among other things, the Minimum GUC Reorg Payment; provided that nothing herein modifies (1) the requirement under the RSA and the Exit Facility that the Reorganized Debtors have at least $12.5 million in Cash on the balance sheet on the Effective Date or (2) the requirement that Holders of Class 4 General Unsecured Claims receive the Minimum GUC Reorg Payment. In the event there is insufficient Cash to make the payments on the DIP Facility Claims or the Prepetition Secured Debt Claims as contemplated herein and pay the Minimum GUC Reorg Payment, the Reorganized Debtors shall still pay the Minimum GUC Reorg Payment and provide the Note to Holders of Class 4 General Unsecured Claims; provided, however, that nothing herein shall require GS to accept Cash payment in an amount less than described in the RSA on account of its Prepetition Secured Debt Claim. To the extent GS and/or TCW elect Increased GS and TCW Impairment, none of the resulting liquidity shall be considered for purposes of calculating whether there is any Excess Cash or in calculating the amount of any Excess Cash Payments.

  • Class 4 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $111.0mn – $120.0mn. Each holder of a General Unsecured Claim will receive its Pro Rata share of the “Class 4 Allocation”…which means (a) the Minimum GUC Reorg Payment, plus (b) if there is any Excess Cash on the Effective Date, the Excess Cash Payments; plus (c) to the extent the Excess Cash Payments (other than those Excess Cash Payments applied to reduce the Deferred Cash Payment) are less than $2 million, the Note, in the principal amount of (x) $2 million minus (y) the amount of any Excess Cash Payments (other than those Excess Cash Payments applied to reduce the Deferred Cash Payment), on the terms described in the Plan Supplement; plus (d) the Interchange Distribution; provided that, for the avoidance of doubt, the total amount of the Minimum GUC Reorg Payment, the Excess Cash Payments and the principal amount of the Note is $5 million."
  • Class 5 (“Preserved Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 6 (“Extinguished Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
  • Class 7 (“Dissenters Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
  • Class 8 (“Equity Interests in Holding”) is impaired, deemed to reject and not entitled to vote on the Plan.
  • Class 9 (“Intercompany Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of interests is N/A and the estimated recovery is 100%.

Definitions

  • Deferred Cash Payment” means a second, final distribution, in the amount of $1 million, made as part of the Minimum GUC Reorg Payment, to be paid no later than March 31, 2022 (subject to further extension with the consent of the Plan Administrator and earlier payment (x) in connection with the Initial GUC Payment if there is Excess Cash on the Effective Date (provided that the Deferred Cash Payment shall be reduced by the amount of any Excess Cash Payment up to $1 million) and (y) upon the occurrence of an Event of Default with respect to the Note).
  • Excess Cash” means excess Cash on the Effective Date available after (x) payment in full, in Cash, of all (i) DIP Facility Claims, (ii) Prepetition Secured Debt Claims to the extent required under this Plan, (iii) Administrative Expense Claims, Priority Tax Claims and Non-Tax Priority Claims (or a reasonable reserve (set in agreement with the Creditors’ Committee) for payment of such Administrative Expense Claims, Priority Tax Claims and Non-Tax Priority Claims) and (iv) the Minimum GUC Reorg Payment (inclusive of the Initial GUC Payment but exclusive of the Deferred Cash Payment), and (y) funding of a minimum of $12.5 million of Cash to the Reorganized Debtors’ balance sheet upon the Effective Date; provided, however, that no liquidity resulting from Increased GS and TCW Impairment or Voluntary DIP Impairment shall be considered in calculating Excess Cash. 
  • Excess Cash Payments” means distributions under the Plan, in addition to the Minimum GUC Reorg Payment, consisting of: (i) the first $1 million of Excess Cash, which shall be applied to reduce the Deferred Cash Payment, and (ii) 50% of any additional Excess Cash, up to an additional $1 million, to be paid to Holders of Class 4 General Unsecured Claims as set forth herein.
  • GS Cash Payment” means an amount in cash from the proceeds of the Exit Facility equal to the lesser of (a) $8,000,000 minus any agreed Increased GS and TCW Impairment and (b) the GS Shareminus any agreed Increased GS and TCW Impairment. 
  • GS Unsecured Note” means an unsecured note made by RT Asset Company in favor of GS in the initial principal amount (calculated as of the Effective Date) equal to the GS Share minus the (i) the GS Cash Payment and (ii) the Lodge Consideration in form and substance acceptable to GS.
  • Initial GUC Payment” has the meaning set forth in the definition of Minimum GUC Reorg Payment.106. “Interchange Claim” means the Debtors’ claim in that certainlitigation captioned In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, Civil Action No. 1:05-MD-01720 (Eastern District of New York).107. “Interchange Distribution” means the right to receive 33% of the proceeds received by the Debtors or the Reorganized Debtors in respect of the Interchange Claim.
  • Minimum GUC Reorg Payment” means a Cash payment in the aggregate amount of $3 million for the benefit of Holders of Class 4 General Unsecured Claims, comprising (i) an initial distribution of $2 million to be paid on or as soon as reasonably practicable after the Effective Date (but no later than sixty (60) days after the Effective Date, subject to further extension with the consent of the Plan Administrator) (the “Initial GUC Payment”), and (ii) the Deferred Cash Payment.

Capital Structure

FN2 Dollar amounts are in millions and do not include accrued and unpaid interest, fees, expenses and other obligations.  

FN3 Amount consists of Existing Letters of Credit in the approximate amount of $9.55 million and prepetition revolving loan advance of $2.0mn.

Corporate Structure

Voting Results

On February 9, 2021, the Debtors’ claims agent notified the Court of the voting results [Docket No. 1090], summarized below:

  • Class 3 (“Bondholder Secured Claims”): 4 claim holders, representing $35,761,101.94 (100%) in amount and 100% in number, voted in favor of the Plan.
  • Class 4 (“Bondholder Secured Claims”): 321 claim holders, representing $16,354,538.89 (22.02%) in amount and 53.59% in number, voted in favor of the Plan. 278 claims holders, representing $57,918,691.54 (77.98%) in amount and 46.41% in number, rejected the Plan.

Petition Date Perspective

In December 2017, NRD Capital completed its acquisition of the then publicly traded Debtors (NYSE: RT) in a transaction valued at $335.0mn. In connection with the transaction, the Debtors (i) entered into a new credit facility for a secured term loan in the amount of $115.0mn and a new $12.5mn secured revolving credit facility; and (ii) provided notice of an optional redemption to the holders of its 7.625% Senior Notes due 2020 pursuant to which the Company had elected to redeem $212.5mn in principal amount of the outstanding Notes. 

At the time of the acquisition, the Debtors had 596 Ruby Tuesday restaurants (541 owned and 55 franchised), but those number have apparently dropped considerably in recent months, with reports suggesting that the Debtors have "quietly closed" 150 locations during 2020.

NRD Capital was founded by Former Popeyes, Domino’s and Checkers franchisee Aziz Hashim in 2014 and also own Fuzzy’s Taco Shop and Frisch’s Big Boy.

In a press release announcing the filing, the Debtors advised that: “Prior to its filing, the Company reached an understanding with its secured lenders to support its restructuring through financing and an agreement regarding the terms of a plan that will provide a sustainable path forward for the restaurant chain. The casual dining favorite plans to use this filing to strengthen its business by reducing liabilities and emerge a stronger organization built for the future. The Company intends to move through the bankruptcy process as quickly as possible. Its restaurants will continue to operate 'business as usual' throughout the reorganization process.”

Shawn Lederman, Ruby Tuesday’s CEO, commented" “This announcement does not mean ‘Goodbye, Ruby Tuesday’. Today’s actions will allow us an opportunity to reposition the company for long-term stability as we recover from the unprecedented impact of COVID-19….Our restructuring demonstrates a commitment to Ruby Tuesday’s future viability as we work to preserve thousands of team member jobs."

Notwithstanding the "understanding" with secured lenders referred to in the press release, board minutes filed with the Debtors' lead Petition do not reference any immediately anticipated debtor-in-possession ("DIP") financing or any formalized stakeholder support.

Key Documents

The Disclosure Statement [Docket No. 762] attached the following documents:

  • Exhibit A: Plan of Reorganization 
  • Exhibit B: Restructuring Support Agreement 
  • Exhibit C: Organizational Chart of the Debtors 
  • Exhibit D: Liquidation Analysis
  • Exhibit E: Financial Projections

On February 11, 2021, the Debtors filed a Plan Supplement [Docket No. 1108] which attached the following:

  • Exhibit 4: Rejected Executory Contract / Unexpired Lease List
  • Exhibit 6: Waiver of Avoidance Actions
  • Exhibit 9: Debtors to be Liquidated
  • Exhibit 10: Board Designees of Reorganized RTI
  • Exhibit 11: Board Designees of RT Lodge Company
  • Exhibit 12: RT Lodge Transition Agreement
  • Exhibit 13: Liquor License Transition Agreement
  • Exhibit 14: GS Unsecured Note
  • Exhibit 15: Unsecured Class 4 Note
  • Exhibit 16: Pledge and Security Agreement

Liquidation Analysis (see Exhibit D of Disclosure Statement [Docket No. 762] for notes)

 

About the Debtors

According to the Debtors: “Founded in 1972 in Knoxville, Tennessee, Ruby Tuesday, Inc., is dedicated to delighting guests with exceptional casual dining experiences that offer uncompromising quality paired with passionate service every time they visit. From signature handcrafted burgers to the farm-grown goodness of the Endless Garden Bar, Ruby Tuesday is proud of its long-standing history as an American classic and international favorite for nearly 50 years. The Company currently owns, operates and franchises casual dining restaurants in the United States, Guam, and five foreign countries under the Ruby Tuesday® brand.

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