December 15, 2020 – The Court hearing the Smartours, LLC cases confirmed the Debtors’ Revised Modified Second Amended Chapter 11 Plan of Reorganization [Docket No. 195]. 

On October 19, 2020, Smartours, LLC and one affiliated debtor (“Smartours” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-12625. At filing, the Debtors, New York-based providers of direct-to-consumer, value-oriented travel experiences to a variety of domestic and global destinations, noted estimated assets between $1.0mn and $10.0mn; and estimated liabilities between $10.0mn and $50.0mn.

The Debtors advised on their website that: “On October 19, 2020, smarTours LLC filed for voluntary bankruptcy reorganization under Chapter 11 of the United States Bankruptcy Code. This is good news as it is a big step forward in securing our future and our ability to operate tours once travel resumes…COVID-19 has prevented smarTours from operating our tours and generating revenue. In addition, due to the unprecedented impact of COVID-19 on airlines and other operators, smarTours has been unable to recover deposits and payments made to vendors toward ultimately suspended tours. Even though we attempted to streamline operations and reduce costs, we have carefully evaluated our current situation, including sales of future tours, and it is clear that we don’t have enough cash flow to continue to operate. By filing chapter 11, we will be able to complete our restructuring and accelerate planned improvements in operations."

On December 15, 2020, the Debtors filed their Revised Modified Second Amended Chapter 11 Plan [Docket No. 192]. The Revised Modified Second Amended Plan added a scaled-down definition of "Exculpated Party." The definition now reads, "'Exculpated Party' means, in each of their capacities as such, (a) the Debtors, (b) the official committee of unsecured creditors and (c) and the retained professionals, directors, officers and members, as applicable, of each of the foregoing."

Plan Summary

The Debtors’ prepetition secured lenders and largest equity holder have agreed to provide the Debtors with the capital necessary for the Debtors “to survive the pandemic,” other sources of investment simply not available to a company, like the Debtors, “which lacks hard assets.” Central to the Plan is a customer refund program that will provide a travel credit in respect of deposits accepted from clients; the Debtors’ earlier cash refund policy simply unsustainable in an environment where COVID-19 had dramatically impacted the Debtors’ liquidity position. Support from the prepetition lenders comes in the form of $2.2mn of debtor-in-possession (“DIP”) financing that will roll into an exit facility and the equitization of $15.6mn of term loans. Summit Park II, L.P. has committed to provide a further $5.0mn of equity capital (and is also set to receive an annual $350k management fee).

The Debtors' memorandum of law in support of Plan confirmation [Docket No. 174] provides a pre-Plan confirmation summation, “The transactions contemplated by the Plan are supported by nearly all parties-in-interest, which speaks volumes to the Plan’s fairness, the good faith efforts that culminated in its filing, and its compliance with the Bankruptcy Code. As a result of the contributions and support of the Debtors’ key constituents, including the Required Lenders and the Equity Sponsor, the Plan provides that all of the Debtors’ customers (i.e., Holders of Claims in Class 7 and Class 8) will receive a travel credit in the full amount that such customer paid to the Company prior to the Petition Date.

The Plan enhances the Debtors’ long-term viability and competitive position by (i) preserving customer goodwill through the provision of travel credits, and (ii) providing the Debtors with access to two new working capital facilities to continue funding the Debtors’ business operations, and will enable the Debtors’ management team to rededicate their efforts to operational performance. For the reasons set forth herein, the Plan satisfies the requirements for confirmation set forth in section 1129 of title 11 of the United States Code (the “Bankruptcy Code”) and should be confirmed.”

The Disclosure Statement [Docket No. 127] adds, “Prior to the spread of the novel coronavirus, the Debtors had a strong long-term outlook when taking into account pre-COVID historical operating performance. The Debtors’ liquidity position was dramatically affected by two main factors: (i) the inability to operate tours and (ii) customer requests for travel deposit refunds.

The Debtors initiated discussions with their Prepetition Secured Lenders in the summer of 2020 regarding the terms of a possible restructuring to address the liquidity constraints caused by the COVID-19 pandemic. These discussions lasted many weeks. In parallel with these discussions, management and the board evaluated other alternatives for capital to be raised. Unfortunately, as is evident from even a cursory review by the press, the travel industry has been decimated and few, if any, investors exist for a Company such as smarTours, which lacks hard assets. Eventually, the Debtors and the Prepetition Secured Lenders agreed that a chapter 11 restructuring was the only way to preserve the value of the Debtors’ assets and raise new capital while restructuring the Debtors’ financial obligations, including deleveraging the Debtors’ balance sheet.

Under the Plan, smarTours will provide a travel credit to every customer who paid a deposit or any other amounts for travel to the Company prior to the bankruptcy filing. In connection with the travel restrictions imposed around the globe that forced the Company to suspend tours, consumers ceased booking new tours and ceased making payments on tours that they expected would be suspended. As a result, the Company faced, and continues to face, a cash crisis. In light of the Prepetition Secured Lenders’ Liens on the Company’s assets, and the fact that the industry remains effectively frozen, the Company does not have access to traditional capital sources. Fortunately, the Prepetition Secured Lenders and Debtors’ largest equity holder believe that the Company has a bright future if additional capital is invested in amounts necessary to allow the Company to survive the pandemic and capitalize on the wave of travel that is expected to take place when the pandemic ends. With the assistance of the board, the management team at the Company has prepared detailed financial projections and plans.

After reviewing those plans and projections, the Prepetition Secured Lenders and the Debtors’ largest equity holder agreed to invest in the preparation for the filing of these cases and are prepared to invest in the Company going forward, provided that the Company can quickly emerge from chapter 11 and provided that the releases contemplated in the Plan are approved. These investments will allow the Company to provide travelers with credits for future travel equal to the deposits they paid. Absent these investments, the Company will be forced to liquidate its assets, which are fully encumbered by the Liens of the Prepetition Secured Lenders, which would adversely impact the recovery of all other creditors.”

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

• Class 1 (“Term Loan Claims against smarTour”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $23,821,875 and the estimated recovery is less than 100%. Treatment: On the Effective Date, the $23.8mn aggregate principal amount outstanding under the Term Loan shall be reduced to $16.0mn, with the remaining outstanding principal balance of $7.8 million converted to (i) 3.8 million New Class B Units in Reorganized Holdings and (ii) 15,000 New Class A Units in Reorganized Holdings (collectively, the “Lender Reorganized Holdings Equity Interests”).

1. On the Effective Date, each Holder of a Term Loan Claim against smarTours shall receive (i) its pro rata share of the Lender Reorganized Holdings Equity Interests and (ii) reinstatement of such Term Loan Claim subject to the following modified terms and conditions: (a) the aggregate principal amount due under the Term Loan shall be $16.0mn, consisting of a $10.0mn first out loan and a $6.0mn second out loan, and shall be substantially consistent with the terms set forth on Exhibit B to the Plan.
2. The foregoing modified terms shall be memorialized in an amended and restated Prepetition Credit Agreement, which will likewise provide for the Revolving Exit Facility.

• Class 2 (“Term Loan Claims against Holdings”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $23,821,875 and the estimated recovery is less than 100%. Treatment: On the Effective Date, the $23.8mn aggregate principal amount outstanding under the Term Loan shall be reduced to $16.0mn, with the remaining outstanding principal balance of $7.8mn converted to the Lender Reorganized Holdings Equity Interests.

1. On the Effective Date, each Holder of a Term Loan Claim against Holdings shall receive (i) its pro rata share of the Lender Reorganized Holdings Equity Interests and (ii) reinstatement of such Term Loan Claim subject to the following modified terms and conditions: (a) the aggregate principal amount due under the Term Loan shall be $16.0mn, consisting of a $10.0mn first out loan and a $6.0mn second out loan, and shall be substantially consistent with the terms set forth on Exhibit B to the Plan.
2. The foregoing modified terms shall be memorialized in the amended and restated Prepetition Credit Agreement, which will likewise provide for the Revolving Exit Facility.

• Class 3 (“Revolving Loan Claims against smarTours”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $850k and the estimated recovery is 100%. 
• Class 4 (“Revolving Loan Claims against Holdings”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $850k and the estimated recovery is 100%. 
• Class 5 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 100%.
• Class 6 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is estimated less than $10,000 and the estimated recovery 100%. 
• Class 7 (“Customer Priority Deposit Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $7.7mn and the estimated recovery is 100%. Treatment: Each Holder of a Customer Priority Deposit Claim shall receive a credit for any future trip offered by Reorganized smarTours (each such credit, a “Customer Credit”) equal to the amount of its Customer Priority Deposit Claim. The following terms and conditions shall apply to each Customer Credit (collectively, the “Credit Policy”)

• Customer Credits can be used for any tour destination, not just the original tour destination.
• After the initial use of the Customer Credit, any balance of the remaining Customer Credit will be available for future use.
• In connection with redeeming a Customer Credit, each Holder will be required to certify that such Holder (i) has not recovered the amount paid to the Debtors from insurance, and (ii) has not obtained, and will not seek, a charge back on a credit card on account of such amounts paid to the Debtors. 
•  The Customer Credits shall be non-transferable except under the following circumstances: 
  • For private group leaders that have rebooked a tour with their credit, members of that rebooked tour can be changed for a $199 change fee. Private group leaders who have not rebooked their tours may use the Customer Credit for any trip and traveler set including the group leader with no change fee.
  • Customer Credits shall be transferrable between immediate family members for a $199 change fee.
  • For any customers aged 80 or older the Customer Credit can be transferred to anyone for a $199 change fee.
• Customer Credits shall not expire but shall be subject to the right of Reorganized smarTours to limit the number of customers utilizing Customer Credits on a single trip to no more than fifty percent (50%) of the total number of customers booked on such trip provided, that, the foregoing limitation shall not apply to private group tours, which shall remain private. The limitation on the number of passengers travelling on a particular trip who may utilize Customer Credits will not apply to private groups of twenty or more passengers and no private group of twenty or more passengers will be combined with another group or have passengers who are not part of that group included.
•  Additional Credits
  • Customers who use their Customer Credits shall be provided a $150 reduction in the price of any second tour that they purchase and pay for other than by the use of Customer Credits as long as the second tour departure occurs within one (1) year of the credit tour departure.
  • An additional credit of $150 will be offered for the referral of any new, full price traveler on the same itinerary as the customer traveling utilizing a credit. There is no cap on the number of referrals that can be made in exchange for the referral credit.
• If a customer purchased travel insurance for the original booking, subject to any limitations in the applicable policy, such insurance shall remain in place for the tour that is rebooked using Customer Credits, provided, that no claim was filed and is still pending against such insurance on account of the original tour.

• Class 8 (“Customer Unsecured Deposit Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $5.3mn and the estimated recovery is 100%. Treatment: Each Holder of a Customer Unsecured Deposit Claim shall receive a Customer Credit equal to the amount of its Customer Unsecured Deposit Claim. Notwithstanding the foregoing, Customer Credits shall be subject to the Credit Policy. In connection with redeeming a Customer Credit, each Holder will be required to certify that such Holder (i) has not recovered the amount paid to the Debtors from insurance and (ii) has not obtained, and will not seek a charge back on a credit card on account of such amounts paid to the Debtors.
• Class 9 (“PPP Loan Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $398,100 and the estimated recovery 100%. 
• Class 10 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is estimated less than $500,000 and the estimated recovery is 100%. Treatment: Each Holder of a General Unsecured Claim shall receive, at the sole option of the Debtors with the consent of the Required Lenders and the Equity Sponsor either payment of fifty (50%) percent of the Unsecured Claim on the Effective Date and fifty (50%) percent of the Unsecured Claim on the six (6) month anniversary of the Effective Date or such other treatment which renders such Claim Unimpaired pursuant to section 1124 of the Bankruptcy Code.
• Class 11 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan. The aggregate amount of claims is estimated less than $0 and the estimated recovery is 0%. 
• Class 12 (“Interests in smarTours”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of interests is estimated less than $0 and the estimated recovery is 0%. 
• Class 13 (“Interests in Holdings”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of interests is estimated less than $0 and the estimated recovery is 0%. 

Voting Results

On December 10, 2020, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 170], which were as follows:

• Class 1 (“Term Loan Claims against smarTours”): 5 claim holders, representing $15,946,875.00 (100%) in amount and 100% in number, voted in favor of the Plan.
• Class 2 (“Term Loan Claims against Holdings”): 5 claim holders, representing $15,946,875.00 (100%) in amount and 100% in number, voted in favor of the Plan.
• Class 7 (“Customer Priority Deposit Claims”): 1,854 claim holders, representing $3,081,520.48 (95.63%) in amount and 95.86% in number, voted in favor of the Plan. 80 claims holders, representing $140,711 (4.37%) in amount and 4.14% in number, rejected the Plan.
• Class 8 (“Customer Unsecured Deposit Claims”): 768 claim holders, representing $2,698,884.02 (96.27%) in amount and 94.81% in number, voted in favor of the Plan. 42 claims holders, representing $104,573.00 (3.73%) in amount and 5.19% in number, rejected the Plan.
• Class 10 (“General Unsecured Claims”): 43 claim holders, representing $211,491.25 (93.38%) in amount and 91.49% in number, voted in favor of the Plan. 4 claims holders, representing $14,997.00 (6.62%) in amount and 8.51% in number, rejected the Plan.

Plan Amendments [Docket No. 171]

It was actually quite difficult for any member of either class to figure out whether they sat in class 7, 8 or both, in no small part because of some unfortunate drafting. It is perhaps therefore not surprising that more than 800 ballots were rejected by the Debtors’ claims agent in respect of holders in these two classes (about 2,800 were accepted).

The Disclosure Statement provides that Class 7 “consists of all Customer Priority Deposit Claims” and Class 8 “consists of all Customer Deposit Claims” without otherwise defining those terms in a way that makes clear what makes the claims in both classes (i.e., all deposits on trips) “Priority” or “Unsecured.” Turning to the Plan, a creditor will not readily have found definitions through a search either, because the Plan switched the word order and refers to “Customer Priority Deposit Claims” as “Customer Deposit Priority Claim[s]” (a similar drafting error with Class 8, “Customer Unsecured Deposit Claims” being “Customer Deposit Unsecured Claim[s]” in the Plan).

Making the bifurcation of deposit claims into two classes even odder, is that they are both set to receive the same thing (a “customer credit” in the full amount of the claim) and subject to the same “Credit Policy.”

The subtle distinction between the two classes (which divide a single creditor’s claim into two classes) is, however, this: “Priority” claims in Class 7 are in respect of the first $3,205 of a given deposit and “Unsecured” claims in Class 8 are in respect of those parts of deposits which exceed $3,205.

The Plan provides the following definitions:

“Customer Deposit Unsecured Claim” means "any claim held by a customer of smarTours in excess of $3,025 per person including for the amount of any deposit(s) such customer advanced prior to the Petition Date to smarTours toward a booked trip which has not yet occurred and which was not completed due to matters and events arising from or relating to the COVID-19 global pandemic."

“Customer Deposit Priority Claim” means "any claim held by a customer (direct or indirect) of smarTours in an amount not to exceed $3,025 for the amount of any deposit(s) or other amounts such customer advanced prior to the Petition Date to smarTours toward a booked trip which has not yet occurred or which was not completed due to matters and events arising from or relating to the COVID-19 global pandemic. (By way of further explanation, if an individual booked a trip and paid a deposit or other amounts for themselves and two traveling companions (total of three traveling persons), the Allowed Customer Deposit Priority Claim would be $9,075 (i.e., number of intended travelers for whom $3,025 or more was paid multiplied by $3,025.)”

Making things even more complicated for those creditors who will receive ballots for both classes 7 and 8, the amended Plan now includes amended release language which requires even those who vote against the Plan to affirmatively opt out of third party release (the definition of “releasing party” now redrafted to include “all holders of Claims or Interests who submit a ballot either to accept or reject the Plan and who do not affirmatively opt out of the Third-Party Release).”

Returning to the inclusion in the Plan of the Debtors’ full blown “Credit Policy,” changes include a new $199 fee for various ticket changes (some of which were not allowable at all previously) and the introduction of a marketing program whereby existing claim holders can boost their “Customer Credit” by $150 by referring a friend or booking a further trip.

The Amended Disclosure statement [Docket No. 127] attached following documents:

• Exhibit A: Plan of Reorganization 
• Exhibit B: Liquidation Analysis 
• Exhibit C: Financial Projections

On November 25, 2020, the Debtors filed a Plan Supplement [Docket No. 147], which attaches the following:

• Exhibit A: New Organizational Documents
• Exhibit B: Assumed Executory Contract List [Supplemental Assumed Executory Contract List filed at Docket 157]
• Exhibit C: Management Incentive Plan
• Exhibit D: Exit Facility Documents
• Exhibit E: Form of Customer Credit Letter

Prepetition Indebtedness

The table below summarizes the Debtors’ funded debt obligations as of the Petition Date:

Liquidation Analysis (see Exhibit B of Amended Disclosure Statement [Docket No. 127])

About the Debtors

According to the Petersen Declaration, “smarTours is a provider of direct-to-consumer, value-oriented travel experiences to a variety of domestic and global destinations. The Company offers both pre-packaged tours with pre-set departure dates for individual travelers (‘Series Tours’) and customized, private tours for 20+ person passenger groups (‘Private Tours’). Over 200,000 passengers have traveled with smarTours since the Company’s founding in 1996. In 2019 approximately 13,000 passengers traveled on one of the 50+ itineraries offered by the Company.”

Debtors' Prepetition Corporate Structure (from Petersen Declaration [Docket No. 3]:

"While smarTours was founded in 1996, the entity began to operate in its current structure in 2017 after Holdings acquired the Company from Footbridge Partners, Inc. in October 2017. Holdings owns 100% of the equity of smarTours. Holdings is, in turn, primarily owned by SPST Investors, LLC ('Investors') (approximately 76% on a fully diluted basis (inclusive of incentive units issued)), with management and other small interest holders owning the balance of the equity."   

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