Rubio’s Restaurants, Inc. – Secures Access to $4.5mn of New Money DIP Financing to Continue Restaurant Operations; Court Sets November 20th Final DIP Hearing

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October 28, 2020 – The Court hearing the Rubio’s Restaurants, Inc. cases authorized the Debtors to (i) access $4.5mn in debtor-in-possession (“DIP”) financing on an interim basis from prepetition lender (fka, GCI Capital Markets LLC, "Golub") and (ii) use cash collateral [Docket No. 63]. The $3.5mn balance of the $8.0mn DIP financing package will be made available on issuance of a final order with that order to be considered at a November 20th hearing.

The Debtors' DIP motion [Docket No. 12] notes, “The Debtors commenced these Chapter 11 Cases with the support of, among other parties, all of the holders of the Prepetition Secured Claims to pursue and consummate a value maximizing restructuring of Rubio’s. The Plan contemplates a restructuring (the ‘Restructuring’), which will (a) significantly deleverage the Debtors’ balance sheet through the conversion of approximately $55 million of Secured Loan Claims to equity and an exit facility; (b) treat approximately $18 million of Secured Lender Deficiency Claims as General Unsecured Claims; (c) provide the Debtors with working capital to fund ongoing operations post-emergence; and (d) enable a prompt emergence from chapter 11. In addition, the debtor-in-possession financing package, including the consensual use of cash collateral in connection therewith, is an integral part of the agreed-upon Restructuring. Immediate and adequate financing is necessary to ensure that the Debtors have sufficient liquidity to pay their ordinary course operating expenses, finance these Chapter 11 Cases and provide the Debtors with the ability ultimately to consummate the transactions contemplated by the Plan.

Approval of the Post-petition Financing and consensual use of Cash Collateral is a critical step in the Debtors’ efforts to restructure their balance sheet and rationalize their store footprint following unprecedented business disruption resulting from the COVID-19 pandemic. The Debtors are in need of an immediate infusion of liquidity to ensure sufficient working capital to administer these cases and to otherwise manage their estate, particularly as the Debtors are not yet permitted to implement indoor dining at many of their locations. Immediate access to the Post-petition Financing and authority to use the Cash Collateral is paramount to ensure that the Debtors have sufficient liquidity to fund their operations. As further discussed herein, the Debtors firmly believe that approval of the Post-petition Financing will maximize value for the Debtors’ stakeholders and is a sound exercise of the Debtors’ business judgment.”

Marketing of DIP Financing

The Debtors' investment banker went through the motions in what was pretty much pre-ordained to be a "fruitless" search for third party financing and in respect of which all roads led to prepetition lender Golub. In a declaration in support of the Debtors' DIP financing motion, [Docket No. 13] the Debtors' investment banker provides: "In this case, obtaining access to debtor-in-possession financing was difficult because all or nearly all of the Debtors’ assets are encumbered under the existing capital structure, which, along with the Debtors’ uncertain financial condition, restricts the availability of, and options for, debtor-in-possession financing. To avoid a protracted and expensive priming fight, which the Debtors could not afford, the Debtors and their advisors believed that their only alternatives were to (a) obtain Golub’s consent to the priming of its liens by a third-party lender, (b) locate a third-party lender willing to provide debtor-in-possession financing on an unsecured basis with priority over that of administrative expenses, (c) find lenders willing to refinance out Golub and provide incremental liquidity, or (d) find junior financing and a new secured lender. Indeed, based on a review of Golub’s lien position and our preliminary analysis of the Debtors’ potential enterprise value, the Debtors believed that there was not an equity cushion available for the Debtors to obtain debtor in possession financing based on priming Golub’s liens over their objections, nor would the Debtors’ business be able to sustain its value during a contested priming fight with Golub.

Given these constraints, all parties contacted were unwilling to provide actionable debtor in possession financing junior to Golub. 

Due to the Debtors’ financial position, their existing leveraged capital structure, and the small size of the financing need (which would not generate sufficient return on invested capital to compensate a third-party lender for participating in the financing), the Debtors were unable to identify any interested third-party financing parties. The size of the debtor-in-possession financing request alone did not meet many of the initial qualifications of larger third-party financing sources. Nor were potential financing parties willing to provide financing junior to Golub due to the amount of existing secured debt relative to the Debtors’ financial position (Golub made clear it was not willing to subordinate its first lien position to a third party lender). In addition, any senior financing that did not include Golub’s consent would have inevitably resulted in non-consensual priming fight, which had the potential to draw out these Chapter 11 Cases and result in increased professional costs, threatening the Debtors’ ability to emerge as a viable reorganized entity. For the foregoing reasons, the Debtors determined that reaching out to any additional third party financing sources would be fruitless and unlikely to result in any financing proposals."

Key Terms of the DIP Financing:

  • Borrower: Rubio’s Restaurants, Inc.
  • Guarantors: MRRC Hold Co.; Rubio’s Restaurants of Nevada, Inc.; and Rubio’s Incentives, LLC (collectively, the “Guarantors” and each a “Guarantor”). Such guarantees shall be joint and several.
  • Administrative Agent: Golub Capital Markets LLC (f/k/a GCI Capital Markets LLC) (“Golub”)
  • DIP Lenders: Funds affiliated with Golub
  • Commitment: Each Term A Loan Lender agrees to make a Term A DIP Loan to Borrower, which aggregate commitment shall be $8.0mn (the “Term A DIP Loan”) and which will be funded, on the Closing Date, in the amount authorized by the Interim Order, with the balance to be funded upon entry of the Final Order.
  • Maturity Date: The earliest of (a) December 31, 2020 (or such later date as is agreed to in writing by Administrative Agent), (b) the Plan Effective Date and (c) the date written notice is sent from Administrative Agent to Debtors, the Committees and any trustee appointed in the Bankruptcy Cases, of the occurrence of the “Termination Date” as defined in the Financing Orders, as applicable.

“Termination Date” shall mean, at the Post-petition Agent’s election, the earliest to occur of: (a) the date on which the Post-petition Agent provides, via facsimile, electronic mail or overnight mail, a Carve Out Trigger Notice; (b) the date that is twenty-five (25) days following the Petition Date if the Final Order is not entered in form and substance satisfactory to Agents and Lenders by such date; (c) the date of the Final Hearing, if this Order is modified at the Final Hearing in a manner unacceptable to Agents and Lenders; (d) the closing date of the sale of all or substantially all of the assets of the Debtors; (e) the date on which the which the Post-petition Debt is Paid in Full; and (f) December 31, 2020, or such later date as Agents and Debtors may agree in writing.

  • Interest Rate: LIBOR (with a floor of 1.25%) plus 7.50% per annum (or if applicable, Index Rate plus 6.25% per annum), plus incremental paid-in-kind (PIK) interest at a rate  of 4.00% per annum. 
  • Default Rate: Two percentage points (2%) per annum, increased to four percentage points (4%) per annum on and after December 31, 2020 (or such later date as agreed to in writing by DIP Agent).
  • Fees
    • Closing Fees: A fee in an amount equal to $90,000, which fee shall be fully earned on the date of entry of the Interim Order and payable upon entry of the Interim Order.
  •  Milestones
    • No later than seven (7) days after the Petition Date (or such later date as Agents may agree in writing at their discretion), the Debtors shall have filed a plan of reorganization (the “Plan”) and a motion seeking approval of the disclosure statement and solicitation procedures related to the Plan (the “Disclosure Statement Motion”).
    • No later than sixty-three (63) days after the Petition Date (or such later date as Agents may agree in writing at their discretion), the Court shall have entered an order granting the Disclosure Statement Motion and confirming the Plan pursuant to section 1129 of the Code (assuming the Plan has obtained the requisite votes).
    • On or before December 31, 2020 (or such later date as Agents may agree in writing at their discretion), the effective date of the Plan shall have occurred.

Prepetition Indebtedness

As of the Petition date, the Debtors have approximately $82.3mn of outstanding funded debt obligations (exclusive of accrued interest and fees). The following charts depict the Debtors’ corporate and capital structure:

Initial Budget

About the Debtors

The Kibler Declaration states: “The Debtors are operators and franchisors of approximately 170 limited service restaurants in California, Arizona and Nevada under the Rubio’s Coastal Grill concept. 

Ralph Rubio co-founded Rubio’s in 1983 after repeated trips to Mexico as a college student…The first Rubio’s location was a walk-up stand in Mission Bay, San Diego….After tremendous growth in the late 1980s and 1990s, Rubio’s completed an initial public offering in May 1999, trading on the NASDAQ National Exchange under the ticker symbol “RUBO.” Ralph stepped down as CEO in 2001 but remained actively involved as head of the culinary team, co-founder and Chairman. In 2010, Mill Road Capital, L.P. (the “Investor”) acquired Rubio’s in a “take- private” transaction for $91 million.

The Debtors employ more than 3,400 hourly and salaried employees at their restaurants and corporate offices located in Carlsbad, California.

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