SLT Holdco, Inc. (Sur La Table, Inc.) – Following Asset Sales, Former Kitchenware Retailer Notifies Court of November 6th Effectiveness Date for Liquidation Plan

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November 6, 2020 – The Debtors notified the Court that their First Amended Joint Plan of Liquidation had become effective as of November 6, 2020 [Docket No. 576]. The Court previously confirmed the Debtors’ Plan on October 22, 2020 [Docket No. 548].

On July 8, 2020, SLT Holdco, Inc. and one affiliated Debtor (d/b/a Sur La Table, Inc.; “SLT” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of New Jersey, lead case number 20-18368 (Judge Kaplan). At filing, the Debtors, retailers of home kitchenware products, noted estimated assets between $100.0mn and $500.0mn, and estimated liabilities between $100.0mn and $500.0mn.

The Debtors were represented by Michael D. Sirota of Cole Schotz P.C. Further board-authorized engagements included (i) SOLIC Capital Advisors LLC and SOLIC Capital, LLC (collectively, “SOLIC”) as financial advisors and investment banker, (ii) A&G Realty Partners, LLC  as real estate advisor and (iii) Omni Agent Solutions as claims agent.

Administrative claims and professional fee claims must be submitted by November 27th.

Following a the sale of operational and IP assets (see below), the Debtors' businesses continue as a going concern, albeit it with a footprint reduced by over 50% (the Debtors have gone from approximately 120 to 50 bricks and mortar locations). For general unsecured creditors, the loss was effectively total, with $60.0mn of claims receiving less than 0.1% recovery. Also sharing the pain, holders of ABL secured loan claims who will get an estimated recovery of 16.4%.

The Debtors cited "declining rates of preparing meals at home and a shift in customer preferences away from physical retail stores and toward online-only stores," "a store footprint that is disproportionate to market demands" and "significant executive turnover" as amongst the factors necessitating their Chapter 11 filings (see further below).

Plan Overview 

Following a the sale of operational and IP assets (see below), the Debtors' businesses continue as a going concern, albeit it with a footprint reduced by over 50% (the Debtors have gone from approximately 120 to 50 bricks and mortar locations). For general unsecured creditors, the loss was effectively total, with $60.0mn of claims receiving less than 0.1% recovery. Also sharing the pain, holders of ABL secured loan claims who will get an estimated recovery of 16.4%.

The Debtors cited "declining rates of preparing meals at home and a shift in customer preferences away from physical retail stores and toward online-only stores," "a store footprint that is disproportionate to market demands" and "significant executive turnover" as amongst the factors necessitating their Chapter 11 filings (see further below).

The Memorandum provided the following overview on the eve of the Plan confirmation hearing: "After exploring out-of-court strategic alternatives, the Debtors concluded that they were unable to reorganize and that the best way to maximize value for the benefit of all stakeholders was through a winddown and court-approved sale process. Following a successful sale process, and just over three (3) months after commencing these Chapter 11 Cases, the Debtors now seek confirmation of the Plan…..The Plan is the culmination of the Debtors’ substantial efforts over the past several months to bring these Chapter 11 Cases to a value maximizing close following a successful sale of substantially all of the Debtors’ assets other than those subject to a Court-approved liquidation process. The Plan provides for the liquidation and conversion of all of the Debtors’ remaining assets to cash and the distribution of the net proceeds realized therefrom….The Plan is supported by the Debtors’ key stakeholders, including the Debtors’ secured creditors and the Official Committee of Unsecured Creditors (the “Committee”). In addition, the holders of Claims in Classes 4 (ABL Secured Claims), 5 (Term Loan Secured Claims), and 6 (General Unsecured Claims), the only classes entitled to vote, overwhelmingly voted to accept the Plan."

The Disclosure Statement [Docket No. 374] notes, “The primary objectives of the Plan are to maximize the value of recoveries to all holders of Allowed Claims and Allowed Interests and generally to distribute all property of the Estates that is or becomes available for distribution in accordance with the priorities established by the Bankruptcy Code. The Debtors believe that the Plan accomplishes these objectives and is in the best interest of the Estates.

Each of the Debtors is a proponent of the Plan within the meaning of section 1129 of the Bankruptcy Code. The Plan contemplates the substantive consolidation of the Debtors’ estates. The entry of the Confirmation Order shall constitute approval by the Bankruptcy Court of the substantive consolidation of the Debtors and their respective Estates for all purposes relating to the Plan, including for purposes of voting, confirmation, and distributions. If this substantive consolidation is approved, then for all purposes associated with the Confirmation and Consummation of the Plan, all assets and liabilities of the Debtors shall be treated as though they were merged into a single economic unit.

Generally speaking, the Plan:

  • vests all Unencumbered Cash in the Liquidation Trust, for the purpose of distribution to holders of Allowed Claims;
  • provides for the full and final resolution of funded debt obligations;
  • designates a Liquidation Trustee to wind down the Debtors’ affairs, prosecute, continue, or settle Retained Causes of Action, pay and reconcile Claims, and administer the Plan and Liquidation Trust; and
  • provides for 100 percent recoveries for holders of Administrative Claims, Professional Fee Claims, Secured Tax Claims, Priority Tax Claims, Other Secured Claims, and Other Priority Claims.”

The following is a summary of classes, claims, voting rights and expected recoveries showing changes (defined terms are in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):

  • Class 1 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claim is $0.00 and expected recovery is 100%. Form of Recovery: Cash.
  • Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claim is $36,000.00 and expected recovery is 100%. Form of Recovery: Cash.
  • Class 3 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claim is $124,000 and expected recovery is 100%. Form of Recovery: Cash.
  • Class 4 (“ABL Loan Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $19,957,272 and expected recovery is 16.4%. Form of Recovery: Encumbered Cash.
  • Class 5 (“Term Loan Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claim is $2,000,409 and expected recovery is 100%. Form of Recovery: Encumbered Cash.
  • Class 6 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claim is $60,237,000 and expected recovery is 0.04%-0.1%. Form of Recovery: Beneficial Trust Interests. NB: The estimated recovery percentage for Class 6 General Unsecured Claims does not include any proceeds for recoveries on account of Retained Causes of Action. At this time, the Debtors have not conducted a separate valuation of any of the Retained Causes of Action.
  • Class 7 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claim is N/A and expected recovery is 0%. Form of Recovery: None.
  • Class 8 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claim is N/A and expected recovery is 0%. Form of Recovery: None.
  • Class 9 (“Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claim is N/A and expected recovery is 0%. Form of Recovery: None.

Voting Results

On October 16, 2020, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 529], which were as follows:

  • Class 4 (“ABL Loan Secured Claims”): 1 claim holder, representing $45,365,271.97 in amount and 100% in number, accepted the Plan.
  • Class 5 (“Term Loan Secured Claims”): 1 claim holder, representing $37,477,967.84 in amount and 100% in number, accepted the Plan.
  • Class 6 (“General Unsecured Claims”): 58 claim holders, representing $26,419,488.16 (or 99.49%) in amount and 92.06% in number, accepted the Plan. 5 claim holders, representing $135,041.77 (or 0.51%) in amount and 7.94% in number, rejected the Plan.

Asset Sale Background

On August 13, 2020, the Court issued an order approving the sale of substantially all of the Debtors’ assets to a joint venture (referred to as the “Successful Bidder”) comprised of CSC Generation Holdings, Inc. (“CSC”) and Marquee Brands (“Marquee”). Although the two groups clubbed together to top the Debtors’ credit-bidding stalking horse, CF SLTD Holdings LLC (an affiliate of prepetition lender Fortress Investment Group or “Fortress”), each has purchased separate assets and the sale is memorialized in two asset purchase agreement executed by two acquisition vehicles. The Debtors placed a value on the aggregated sales of $88.9mn which considerably advanced on the stalking horse bid of $61.34mn made by Fortress. Significantly, the SLT OpCo Buyer also intends to “increase the guaranteed minimum number of store leases to be assumed by the Successful Bidder from 40 locations to 50 locations.”

CSC has used SLT Lending SPV, Inc. (the “SLT OpCo Buyer”) to acquire operational assets and Marquee has used SLT IP Holdings LP (the “SLT IP Buyer” and together with the SLT OpCo Buyer, the “Buyers”) to acquire IP assets [Docket No. 307]. As the “OpCo” and “IP” designations suggest, CSC is acquiring everything related to operations of 50 (raised from 40) “Specified Stores” (including related e-commerce assets) and Marquee is acquiring the Debtors’ intellectual property and customer information.

Both of the asset purchase agreements (the “SLT OpCo Purchase Agreement” and the “SLT IpCo Purchase Agreement” and together, the “APAs”) are attached to the sale order, with the August 3rd SLT OpCo Purchase Agreement being amended, including (i) as to price and (ii) increasing the number of leases to be assumed 

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Goldberger Declaration”) [Docket No. 30], Jason Goldberger, the Debtors’ Chief Executive Officer, detailed the events leading to SLT’s Chapter 11 filing. The Goldberger Declaration provides: “The Debtors, like many other retail companies, have faced a challenging commercial environment over the past several years. 

The Debtors’ challenges have been exacerbated by declining rates of preparing meals at home and a shift in customer preferences away from physical retail stores and toward online-only stores. Given the Debtors’ substantial brick-and-mortar retail presence, their business has been heavily dependent on in-store traffic, which has declined in recent years (notwithstanding the tremendous success and growth of the Debtors’ cooking classes). The Debtors’ financial condition is weighed down by a store footprint that is disproportionate to market demands, and the substantial capital costs incurred in connection with: (a) installing commercial quality kitchen spaces sufficient to host the Debtors’ cooking classes; and (b) upgrading their inventory and related systems to incorporate a comprehensive e-commerce sales strategy. As a result, the Debtors have seen meaningful revenue decline for the past 5 years. Compounding the Debtors’ overall distress was significant executive turnover in the past several years; I am the Debtors’ third CEO since 2017.

In early 2020, the Debtors determined to run a strategic process to identify the best vehicle to restructure their operations and finances. By mid-March, however, initial responses to the COVID-19 pandemic required the Debtors to close 23 of their retail locations without prospect for reopening. This was followed almost immediately by a determination to suspend all cooking classes, followed shortly by a decision to close all of the Debtors’ retail locations as the scope of the pandemic rapidly became known. By mid-April the Debtors had closed their corporate headquarters and either reduced hours or furloughed completely 151 of their employees at headquarters; leaving only 5 full-time employees to run the operation. Although the Debtors’ e-commerce sales recorded record revenues for the period, online sales were nowhere near sufficient to offset the Debtors’ fixed real estate lease expense of approximately $4 million per month, much less make up margins on sales from the Debtors’ 126 retail locations. The economic impact of COVID-19 would necessitate that the Debtors ultimately seek relief under chapter 11. The only real questions that remained were when and whether the Debtors would seek to liquidate or be able to attract on a compressed timeline a strategic partner willing to sustain the business as some sort of going concern.”

Prepetition Indebtedness

The Debtors finance their business operations with two forms of funded, secured debt: (i) an asset-based revolving credit facility (with Wells Fargo Bank, National Association as agent) on which the Debtors traditionally owe anywhere from $50-85.0mn, depending on the time of year and (ii) a term loan credit facility (with CF SLTD Holdings LLC as the collateral and administrative agent). As of the Petition date, the Debtors owed approximately $45.4mn (plus interest) in respect of the ABL revolving loan and $35.1mn (plus interest) in respect of the term loan.

As of the Petition date, the Debtors also have unsecured claims in excess of $37.0mn which includes (a) accrued and unpaid trade and other unsecured debt incurred in the ordinary course of the Debtors’ business, (b) unpaid amounts owed to the Debtors’ vendors, and (c) claims for unpaid rent and other obligations under the Debtors’ leases.

Key Documents

The Disclosure Statement [Docket No. 455] attached the following documents:

  • Exhibit A: First Amended Chapter 11 Plan
  • Exhibit B: Liquidation Analysis

The Debtors filed Plan Supplements at Docket Nos. 506 and 527 which attached the following documents:

Docket No. 506

  • Exhibit A: Liquidation Trust Agreement 
  • Exhibit B: Liquidation Trust Expense Reserve 
  • Exhibit C: Identity and Compensation of Liquidation Trustee 
  • Exhibit D: Identity of Liquidation Trust Advisory Board

Docket No. 527

  • Exhibit A: Amended Liquidation Trust Agreement 
  • Exhibit B: Blackline of Amended Liquidation Trust Agreement 
  • Exhibit C: Amended Identity of Liquidation Trust Advisory Board 
  • Exhibit D: Blackline of Amended Identity of Liquidation Trust Advisory Board

Liquidation Analysis (see Exhibit B to Disclosure Statement [Docket No. 374] for notes)

About the Debtors

The Goldberger Declaration provides: "The Debtors are one of America’s most highly regarded retailers of home kitchenware products.  Founded at Seattle’s iconic Pike Place Market in 1972, Sur La Table grew to 126 retail locations across the country and a significant online retail presence.  Pre-COVID, the Debtors were experiencing significant growth in its culinary experience, which provides hands-on cooking classes in 85 of its 126 locations from resident chefs and their assistants in classes conducted in Sur La Table retail establishments that are especially outfitted with commercial-grade kitchens.

The Debtors divide their business into three segments: (a) brick and mortar retail sales of kitchenware and related goods, which generated more than $230 million of revenue in fiscal year 2018; (b) e-commerce retail sales of kitchenware and related goods, which generated more than $80 million of revenue in fiscal year 2018, and (c) cooking classes, the Debtors’ fastest growing segment in recent years, which generated more than $35 million of revenue in fiscal year 2018. As of the Petition Date, the Debtors operate 121 retail stores, with their largest concentrations of stores located in California (30), Texas (13), and Florida (10). "

According to the Debtors: "Our company started with a simple idea: Make good food. Share it. Do so often. Sur La Table is as close to this mission today as the day we opened our doors in Seattle's Pike Place Market in 1972. From the beginning, our founder Shirley Collins partnered with the world’s best chefs and kitchen brands to bring customers trusted tools to make delicious memories.

Our resident chefs teach 60,000 cooking classes a year to more than 700,000 people in our kitchens and now online. With 121 stores across the US and many local cooking schools, Sur La Table is a resource for cooks of all levels. And we continue to create happiness through cooking and sharing good food. Make More Gather Often. That's our invitation to you"

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