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September 20, 2022 – The Debtors, set to run out of cash in just over a week, have filed an emergency motion to reopen an auction process after their "successful bidder" failed to secure funding for their acquisition of the Debtors' assets [Docket No. 252].
In a declaration in support of reopening the auction process [Docket No. 253], the Debtors' investment banker Force 10 Partners, LLC details what has at times appeared a shambolic auction/sale process and outlines the prospects for rebooting that process on an expedited timetable: "The Debtors received three bids for the Assets. However, the bid received from Enceladus Development Venture III, LLC ('Enceladus'[*]) was so far superior to the other bids that the auction authorized under the Bidding Procedures for August 30, 2022 was cancelled. Overland Tandberg ('Overland') had significant closing conditions and remaining deal terms to be negotiated, and agreed to be the back-up bidder if we could resolve the open issues. In order to accommodate timing issues associated with financing for Enceladus and the sale of the Debtors’ assets in the United Kingdom, the hearing to approve the sale of the Assets has been continued four (4) times moving from September 2, 2022 to September 21, 2022.
On Friday, September 16, 2022, Enceladus effectively withdrew its bid because its financing fell through.
It is my understanding that Serene Investment Management, LLC (the 'DIP Lender') proposes that the Debtors’ reopen the Auction with the DIP Lender serving as the stalking horse bidder.
…I believe that reopening the Auction process will allow additional time for Overland, and possibly Enceladus, to determine to resubmit bids for the Assets. Further, as of this writing, we contacted three additional parties to encourage them to re-engage.
Taking into account reserves for accrued expenses, the Debtor will run out of cash on September 30, 2022."
* Enceladus is the ice covered (and very shiny) sixth-largest moon of Saturn.
On June 20, 2022, StorCentric, Inc. and six affiliated Debtors (“StorCentric” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $10.0mn and $50.0mn. At filing, the Debtors, a privately held, independent data management and storage solutions company, cited the devastating impact of the COVID 19 pandemic as forcing them to seek bankruptcy shelter and their intention to use Chapter 11 “to effectuate an eventual sale of their businesses.”
On July 29th, the Court hearing the StorCentric cases issued an order authorizing the Debtors to access a further $2.25mn of debtor-in-possession ("DIP") financing from Serene Investment Management, LLC (“Serene*” or the “DIP Lender,” which had already dribbled out $2.75mn of financing) with that final DIP order coming over objections from the Debtors' creditors' committee (the "Committee") which had argued that the Debtors really belong in Chapter 7 and that the DIP financing was both inordinately expensive and, given what the Committee views as a pointless sales effort and inevitable decline into administrative insolvency, a waste of the Debtors' dwindling resources.
*Serene, a lower-middle market special situations lender, touts itself as a provider of “liquidity across the capital stack with totally discretionary capital.” No stranger to involvement in Chapter 11 cases, Serene was also the prepetition lender, DIP lender and stalking horse bidder in the YogaWorks cases and a bank debt purchaser and DIP revolver lender for Sugarfina. In addition, a Serene affiliate provided DIP financing for Warrior Custom Golf.
On September 6th, further to a July 22nd bidding procedures order [Docket No. 141], the Debtors notified the Court that they had cancelled a scheduled September 6th auction and designated Enceladus Development Venture III, LLC as the winning bidder for substantially all of their assets [Docket No. 229]. An asset purchase agreement was not filed (hence no details as to sale terms) and a sale hearing was scheduled for September 8th and then delayed several times.
- Bid Deadline: September 23, 2022
- Auction: September 27, 2022
- Sale Hearing: September 29, 2022
On June 30th, the Debtors filed a motion requesting each of a bidding procedures order and a sale order [Docket No. 65] and on July 22nd the Court issued a bidding procedures order which approved proposed bidding procedures in a respect of the sale of substantially all of the Debtors’ assets, (ii) authorized the selection of one or more stalking horses (none selected yet) and the offer of bidder protections* to any selected stalking horse and (iii) adopted a proposed timetable culminating in an August 23rd auction and an August 26th sale hearing (with these dates now shifted as noted just above).
* Comprised of (i) a breakup fee and (ii) expense reimbursement (collectively, the “Bid Protections”) which together shall not exceed 3% of a stalking horse bidder’s proposed purchase price.
The Debtors' bidding procedures motion [Docket No. 65] states, “The paramount goal in any sale of property of a debtor’s estate is to maximize the proceeds realized by the estate. Accordingly, courts uniformly recognize that procedures intended to enhance competitive bidding are consistent with the goal of maximizing the value realized by the estate and therefore are appropriate in the context of bankruptcy transactions.
Here, the Bidding Procedures comport with the Debtors’ sound business judgment. The Bidding Procedures provide a framework to facilitate and entertain bids and, if such bids are received, to conduct an Auction in an orderly yet competitive fashion, thereby encouraging bids that maximize the value realized from a sale of the assets. In particular, the Bidding Procedures contemplate an open and fair auction process with minimum barriers to entry and provide Bidders with sufficient time to perform due diligence and to acquire the information necessary to submit a timely and well-informed bid. Importantly, the Debtors believe that the proposed Bidding Procedures will encourage prospective bidders to put forward their best bids quickly in order to generate the highest or best recoveries for the Debtors’ stakeholders and also provide for substantial flexibility with respect to the structure of any Sale.”
About the Debtors
According to the Debtors: “StorCentric is a privately held, independent data management and storage solutions company. StorCentric’s operations are focused on providing comprehensive data security, mobility, governance and storage solutions for our customers. In the past four fiscal quarters, over 95% of StorCentric’s revenue was generated from the sale of data management and storage solutions and related support and maintenance agreements. StorCentric’s data management solutions enable our customers to manage and store their data in a secure environment protected from hackers and ransomware attacks. StorCentric enhances these capabilities further with subscription services, such as offline access management. StorCentric also optimizes its global customer support organization to address the needs of our customers, providing full-time support and staffing in multiple locations around the world.
In 2018, StorCrentric was incorporated in the State of Delaware in preparation for the merger and subsequent integration of two long-established data storage vendors, Nexsan and Drobo. Since its incorporation, StorCentric has acquired five companies – Nexsan and Drobo in August 2018, Retrospect and Vexata in June 2019, and Violin in October 2020."
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