Smartours, LLC – Files Amended Plan and Disclosure Statement, Aims for December 14th Confirmation Hearing

Register, or to view the article

November 16, 2020 – The Debtors filed an Amended Plan of Reorganization and a related Disclosure Statement [Docket Nos. 125 and 127, respectively], and separately filed blacklines reflecting changes to the versions of those documents filed on October 26, 2020 [Docket Nos. 126 and 128, respectively].

The amended Plan documents provide further detail of expected recoveries and hammers home the point that further to the Plan's terms "customers will be enjoined from seeking to recover on their claims" after the Plan becomes effective. The Debtors (or rather financial advisor Ariste Advisors, LLC) have also abandoned any attempt at a "difficult, if not impossible" valuation analysis. 

On a more positive note (and to stress the Plan maximizing contributions of the "Equity Sponsor Investor," Summit Park II, L.P. and prepetition secured lenders), the Debtors anticipate that the Plan and its proposed equity and debt contributions will leave it with enough liquidity to see it through 39 months: "Based upon the material equity and debt commitments that are being provided under the proposed Plan, the Debtors believe that they will have sufficient funding available to remain viable and deliver on customer credits even if travel does not resume for 39 months after the Effective Date of the Plan. The base case model used presumes that travel will commence to some degree in late 2021, and then resume more fully in the first half of 2022. Under the Plan, the financial risk for delays beyond that period rests with the Equity Sponsor and Prepetition Secured Lenders [although by inference that risk is being funded in part by other Plan stakeholders before that 39-month mark], who have each committed to providing substantial equity and revolving loans on and after the Effective Date, and who will own the equity in the Reorganized Debtors."

[Update] On November 17th, the Court issued an order approving (i) the Disclosure Statement, (ii) Plan solicitation and voting procedures and (iii) a timetable culminating in a December 14th Plan confirmation hearing [Docket No. 137]; and on November 18th, the Debtors filed a solicitation version of the Disclosure Statement (Docket No. 141).

Overview of the Plan

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 Disclosure Statement [Docket No. 127] notes, “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 an amended summary of classes, claims, voting rights and expected recoveries showing changes in bold (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 $23,821,875.00 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 $23,821,875.00 and the estimated recovery is less than 100%. Treatment: On the Effective Date, the $23.8 million aggregate principal amount outstanding under the Term Loan shall be reduced to $16.0 million, with the remaining outstanding principal balance of $7.8 million 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 $16.0 million, consisting of a $10.0 million first out loan and a $6.0 million 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 $850,000 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 $850,000 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 100%. Treatment: Each Holder of a Customer Priority Deposit Claim shall receive a non-transferable 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 prohibition on the transfer of Customer Credits does not operate to prevent a customer who booked for a private group of twenty or more travelers from making changes to who will travel in the group that the customer booked. In addition, the limitation on the number of passengers travelling on a particular trip who may utilize 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. Notwithstanding the foregoing, Customer Credits shall expire on December 31, 2024 and shall be subject to the right of Reorganized smarTours to limit the number of customers utilizing credit on a single trip to no more than fifty percent (50%) of the total number of customers booked on such trip (collectively, the “Credit Policy”).
  • 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 100%. Treatment: Each Holder of a Customer Unsecured Deposit Claim shall receive a Customer Credit equal to the amount of its Allowed Customer Unsecured Deposit Claim. Notwithstanding the foregoing, Customer Credits shall be subject to the Credit Policy.
  • 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 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 0%. 
  • Class 12 (“Interests in smarTours”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is estimated less than $0 and the estimated recovery 0%. 
  • Class 13 (“Interests in Holdings”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is estimated less than $0 and the estimated recovery 0%. 

Amended Key Dates:

  • Solicitation Date: November 19, 2020
  • Deadline to File Plan Supplement: November 25, 2020
  • Voting Deadline: December 7, 2020
  • Deadline to Object to Confirmation of the Plan: December 7, 2020
  • Deadline for Debtors to File Voting Report: December 10, 2020
  • Confirmation Hearing: December 14, 2020

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

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

Prepetition Indebtedness

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

Lender/Agent

Loan

Collateral

Borrower(s)

Approximate Principal Balance as of 10/19/20

First Eagle Alternative Capital, Inc., as Agent

Revolving Loan Under Credit Agreement

Substantially all assets

smarTours; Holdings

$850,000

First Eagle Alternative Capital, Inc., as Agent

Term Loan under Credit Agreement

Substantially all assets

smarTours; Holdings

$23,800,000

City National Bank (SBA Loan)

Paycheck Protection Program Loan

Unsecured

smarTours

$398,100

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

 

Read more Bankruptcy News