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November 30, 2022 – Winc, Inc. and two affiliated debtors (NYSE American: WBEV; together “Winc” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case No. 22-11238 (Judge Laurie Selber Silverstein). The Debtors, who "develop, produce, and sell alcoholic beverages through wholesale and direct to consumer business channels in conjunction with winemakers, vineyards, distillers, and manufacturers" are represented by Matthew B. Lunn of Young Conaway Stargatt & Taylor, LLP. Further Board authorized appointments include: (i) RPA Advisors, LLC (“RPA”) as financial advisors, (ii) Canaccord Genuity Group, Inc. (“Canaccord”) as investment bankers and (iii) Epiq Corporate Restructuring, LLC (“Epiq”) as claims agent.
The Debtors’ lead petition notes over 100,000 creditors; estimated assets of $50.3mn and estimated liabilities between $37.8mn (these are drawn from their 10-Q and are as of September 30, 2022*). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) META Platforms, Inc. ($724k trade claim, with Mark Zuckerburg amusingly listed as the contact), (ii) JF Hillebrand USA Inc. ($699k trade claim) and (iii) Fed Ex ($569k trade claim).
A healthy percentage of the unsecured creditors' list includes (in respect of Debtors who buy grapes and have a winemaking team responsible for an "end-to-end" grapes-to-bottle process) domestic and international vineyards.
* The Debtors' Q3 10-Q included a going concern warning. NB: The Debtors IPO-ed in November 2021.
In a December 1st 8-K, the Debtors provide: "On November 30, 2022, the Company entered into a confidential, non-binding agreement with a potential stalking horse bidder (the “Bidder”) for substantially all of the Company’s assets. In connection with a definitive asset purchase agreement, anticipated to be executed as soon as possible, the Bidder would be designated as the stalking horse bidder, subject to higher or otherwise better offers in an open auction process."
In respect of the Bidder, the Brault Declaration (defined below), states, "Ultimately, only one party — Project Crush Acquisition Corp LLC (the 'DIP Lender' or the 'Stalking Horse Bidder') — submitted an actionable bid for the Assets.
As discussed above, the Stalking Horse Bidder’s initial proposal contemplated an acquisition of the Assets through an out-of-court merger transaction. The Debtors and the Stalking Horse Bidder agreed on the terms of the merger transaction, subject to documentation, which included, among other things, an all-cash consideration purchase price, as well as bridge financing to ensure that the Debtors could continue to operate in the ordinary course of business through a sale closing date.
However, on the eve of a deadline to finalize transaction documents, the Stalking Horse Bidder pivoted the structure of the transaction to an in-court transaction. Pursuant to those discussions, and after extensive deliberations with the Stalking Horse Bidder and the Debtors’ advisors, the Debtors and the Stalking Horse Bidder agreed to the terms of DIP financing, discussed below, and the material terms of an asset purchase agreement, in the form of a letter of intent, which is attached hereto as Exhibit B (the 'Stalking Horse Bid'), subject to final documentation. The total cash consideration for the Stalking Horse Bid is contemplated to be approximately $10.0 million, subject to higher or otherwise better offers."
Goals of the Chapter 11 Filing
The lead Petition notes that the Debtors are negotiating an asset purchase agreement with an acquisition vehicled called "Project Crush Acquisition Corp LLC."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Brault Declaration”), Carol Brault, the Debtors’ chief financial officer, detailed the events leading to Winc’s Chapter 11 filing. The Brault Declaration provides: “The Debtors have developed a portfolio of five core brands — Summer Water, Wonders, Lost Poet, Folly of the Beast and Chop Shop — and various other non-core brands and products. Over the past several years, the Debtors have undertaken strategic initiatives aimed at expanding and optimizing their product and service offerings and scaling high-performing brands to position the Company for growth and profitability. Unfortunately, despite the promise of these initiatives, the Debtors have been unable to generate revenue sufficient to support the Debtors’ business, and the Company has been dependent on debt and equity financing to fund its operations.
In November 2021, the Company completed its initial public offering ('IPO') through an underwritten sale of 1,692,308 shares of its common stock at a price of $13.00 per share. The aggregate net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses, were approximately $17.7 million. Concurrent with the IPO, all then-outstanding shares of the Company's redeemable convertible preferred stock were converted into an aggregate of 8,395,808 issued shares of common stock and reclassified into permanent equity. Following the IPO, there were no shares of redeemable convertible preferred stock outstanding.
Through these and other efforts, including a re-configured marketing strategy to reduce digital advertising costs, the Company materially improved its liquidity position and was poised for continued growth and profitability. However, the Company faced tightening liquidity as revenue from DTC sales declined, and, facing a looming maturity date under the Prepetition Credit Facility (as defined below), the Company struggled to secure new third party financing.
After considering all strategic alternatives, the Debtors, in consultation with their legal and financial advisors, determined that the commencement of a comprehensive marketing process provided the best path to preserve and maximize the value of the Debtors’ assets. As discussed in detail below, after an extensive, approximately nine-month long marketing campaign, the Debtors identified a potential purchaser for the Company as a going concern and began negotiating an out-of-court merger transaction that contemplated, among other things, a lengthy approval process by stockholder approval at a duly called meeting of the stockholders of Winc and the purchaser’s extension of bridge financing.
After execution of a letter of intent and obtaining a commitment to deliver documentation for the merger transaction and bridge financing prior to the Thanksgiving holiday, the potential purchaser revised the structure of the transaction, proposing instead to consummate the transaction through a chapter 11 sale process, and provided the Debtors with a new letter of intent to act as a stalking horse bidder for substantially all of their assets (the 'Assets').
Facing a looming payment default under the Prepetition Credit Facility and given the limited liquidity available to the Debtors, the Debtors and the potential purchaser pivoted to negotiating the terms of a debtor in possession financing ('DIP') facility to fund the Debtors’ operations, while, in parallel, working to finalize the terms of a stalking horse agreement. Given various circumstances, including — most prominently — liquidity constraints, the Debtors determined, in consultation with their legal and financial advisors, to commence the Chapter 11 Cases to implement a sale of the Assets. The Debtors expect, in the near term, to seek approval of a sale with a stalking horse bidder that is subject to a competitive bidding process and consistent with both the timing of the Chapter 11 Cases and the Debtors’ fiduciary duties to maximize value for their estates, stakeholders, and parties in interest.”
The Debtors’ outstanding secured debt consists of a first lien revolving credit facility with an outstanding balance of approximately $3.5 million. In addition, the Debtors entered into a revenue sharing agreement, pursuant to which the Debtors obtained an advance of approximately $2.88 million against approximately $3.26 million of future receivables. The Debtors also incur trade payables and operating expenses in connection with the ordinary course operations of their business.
As of the Petition Date, the Debtors’ outstanding obligations in connection with the foregoing are estimated at the following amounts:
Significant Prepetition Shareholders
The Debtors' Petition notes the following as holding 5% or more of their equity:
- Affiliates of Bessemer Venture Partners VIII Institutional L.P. and Bessemer Venture Partners VIII L.P.
- Affiliates of Shining Capital Holdings II L.P. and Shining Capital Management III Limited
- Affiliates of CJF Palate Holdings LLC and Cool Japan Fund Inc.
- Geoffrey McFarlane
- Brian Smith
- Xiangwei Weng
About the Debtors
According to the Debtors: “Winc is a differentiated platform for growing alcoholic beverages brands, fueled by the joint capabilities of a data-driven brand development strategy paired with a true omni-channel distribution network. Winc's mission is to become the leading brand builder within the alcoholic beverages industry through an omni-channel growth platform." Winc's common stock trades under the ticker symbol "WBEV" on the NYSE American.
Corporate Structure Chart
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