October 26, 2020 – The Debtors filed a Plan of Reorganization and a related Disclosure Statement [Docket Nos. 62 and 63, respectively]; and further filed a motion requesting Court approval of (i) the Disclosure Statement, (ii) proposed Plan solicitation and voting procedures and (iii) a proposed schedule culminating in December 14, 2020 Plan confirmation hearing [Docket No. 64].

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. The largest equity holder (the "Equity Sponsor Investor," Summit Park II, L.P. ) has committed to provide a further $5.0mn of equity capital.

The Disclosure Statement 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 summary of classes, claims, voting rights and expected recoveries (defined terms are in the Plan and/or Disclosure Statement):

• Class 1 (“Term Loan Claims against smarTour”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $23.8mn.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”).
  • 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.
  • 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 $23.8mn.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.
  • 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.
  • 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.
• Class 4 (“Revolving Loan Claims against Holdings”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 5 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 6 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 7 (“Customer Priority Deposit Claims”) is impaired and entitled to vote on the Plan. 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. 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. 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.
• Class 10 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. 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.
• Class 12 (“Interests in smarTours”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 13 (“Interests in Holdings”) is impaired, deemed to reject and not entitled to vote on the Plan.

DIP Facility and Exit Financing

On October 22nd, the Court hearing the Smartours cases authorized the Debtors to (i) access $496k in new money term loans on an interim basis, (ii) roll up $862k of prepetition debt (the "Roll-Up Loans") and (iii) use cash collateral [Docket No. 48]. 

The current interim financing is part of a $2.2mn DIP financing package being provided by prepetition senior lenders after a marketing effort failed to deliver third-party financing offers. In total, the financing consists of (a) $1.338mn in new money term loans (with $496k now available and the balance available with a final DIP order) and (b) the $862k of Roll-Up Loans.

The DIP loans shall be exchanged at exit from Chapter 11 for loans under a revolving exit facility (the “Revolving Exit Facility”), which shall have a maximum principal balance of $5.0mn and be extended generally upon the same terms as the DIP Facility and will mature on December 31, 2024.

Revolving Exit Facility

• Principal Balance: $5.0mn, funded (i) via assumption of DIP obligations outstanding on the Effective Date and (ii) new revolving loans funded pursuant to the Budget
• Interest Rate: LIBOR (1% floor) plus 6.75% paid in cash
• Unused Commitment Fee: 0.50% per annum of the unfunded portion of new money committed, which shall be paid in full in cash on a quarterly basis
• Maturity: December 31, 2024

Exit Term Loan Facility

• Principal Balance: $10.0mn First Out Tranche, $6.0mn Second Out Tranche
• Interest Rate (First Out Tranche): LIBOR (1% floor) plus 7.75% paid-in-kind until December 31, 2022, LIBOR (1% floor) plus 7.75% paid in cash beginning on January 1, 2023
• Interest Rate (Second Out Tranche): TBD
• Maturity: December 31, 2024

Preferred Equity Investments

The Disclosure Statement provides, "On and following the Effective Date, the Equity Sponsor Investor shall invest $5.0 million in Reorganized Holdings through new equity contributions (the 'New Equity Contributions'). The New Equity Contributions shall be made pursuant to the Budget and in the form of dollar-for-dollar contributions that equal the amount of (x) on the Effective Date, the outstanding balance of the DIP Loans and (if not rolled up into DIP Loans) any Revolving Loan Claims (the aggregate contribution by Equity Sponsor Investor pursuant to this clause (x), the 'Initial Equity Match') and (y) thereafter, pursuant to the Budget, with the Revolving Exit Facility Lenders irrevocably matching post-Effective Date New Equity Contributions on a dollar-for-dollar basis other than DIP Loans and Revolving Loan Claims matched by New Equity Contributions on the Effective Date.

The New Equity Contributions shall be in consideration of, and the Equity Sponsor Investor shall receive (A) on the Effective Date: (i) one New Class B Unit in Reorganized Holdings for each dollar of New Equity Contributions made in connection with Initial Equity Match; and (ii) 65,000 New Class A Units in Reorganized Holdings; and (B) on the date of each New Equity Contribution made in excess of the Initial Equity Match: one New Class B Unit in Reorganized Holdings for each dollar of such New Equity Contribution. In addition, in the event of any Equity Sponsor L/C Related Contributions, such Equity Sponsor L/C Related Contributions shall give rise to subrogation claims of the Equity Sponsor Investor or the Equity Sponsor, as the case may be, against smarTours or Reorganized smarTours, as applicable, in an amount equal to such Equity Sponsor L/C Related Contributions. Accordingly, in addition to the New Equity Contributions, on or after the Effective Date, the Equity Sponsor Investor or the Equity Sponsor, as the case may be, shall also receive on the date thereof: (i) one New Class B Unit in Reorganized Holdings for each dollar of the Equity Sponsor L/C Related Contributions (not to exceed $2.9 million) in respect of such subrogation claims. To the extent that any Equity Sponsor L/C Related Contributions become Equity Sponsor Cash Collateral, the balance of such Equity Sponsor Cash Collateral shall be made available to Reorganized smarTours for use as financial surety of up to $1,900,000 to any one or more credit card processor(s) and up to $1,000,000 to the USTOA, as the case may be, through the date on which the balance of the Exit Credit Agreement is paid in full, after which time, the proceeds of the Equity Sponsor Cash Collateral, if any, may be distributed to the Equity Sponsor Investor, as the case may be. All existing holders of Class A Units in Holdings as of the Petition Date shall be given the opportunity to invest in Equity Sponsor Investor’s pre-Effective Date equity raise, based on their pro rata share of such class a units as of the Petition Date." 

Proposed Key Dates:

• Voting Record Date: November 17, 2020
• Solicitation Date: November 19, 2020
• Deadline to File Plan Supplement: November 27, 2020
• Voting Deadline: December 4, 2020
• Deadline to Object to Confirmation of the Plan: December 4, 2020
• Deadline for Debtors to File Voting Report: December 10, 2020
• Confirmation Hearing: December 14, 2020

Prepetition Indebtedness

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

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.”

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