November 9, 2020 – The Court hearing the YogaWorks cases issued an order authorizing the Debtors to (i) access the $2.35mn balance of a $3.35mn debtor-in-possession (“DIP”) financing facility being provided by prepetition lender Serene Investment Management, LLC (“Serene”, or the “DIP Lender”) and (ii) continue using cash collateral [Docket No. 133]. 

In an October 16th interim order, the Court had previously authorized the Debtors to access $1.0mn of the DIP facility [Docket No. 44].

The Debtors have executed an asset purchase agreement (the "APA") with Serene, further to which Serene has agreed to serve as a stalking horse in a section 363 auction/sale process. Serene, which pitches itself as a "Lower Middle Markets Special Solutions" expert, has considerable recent experience buying assets out of bankruptcy, having recently acquired (or is in the process of acquiring) interests in Sugarfina, Warrior Custom Golf and FoodFirst Global Restaurants.

Serene is the present holder of $10.0mn of the Debtors' prepetition debt having purchased that debt just prior to the Debtors Chapter 11 filings. What Serene paid for that debt, which it will now credit bid at face value, is unknown; although we do know that it had already changed hands once when initial lender Avidbank assigned it to Great Hill Equity Partners V, LP (“GHP”).

Background

In an October 14th press release announcing their Chapter 11 filings, the Debtors advised that: “As part of this process, YogaWorks has entered into a purchase agreement ('Agreement') with Serene Investment Management ('Serene'), pursuant to which Serene will serve as the stalking horse bidder and has agreed to acquire the YogaWorks digital and education business and intellectual property."

The Debtors’ requesting DIP motion stated, “The Debtors have determined that, in order for each to operate their businesses during these chapter 11 cases, the Debtors will need more cash over the next approximately thirteen weeks (or until the closing of a sale of the Debtors’ assets, which is anticipated to close within the next sixty to ninety days) than the Debtors can reasonably expect to be generated from their business operations. The Debtors have undertaken an analysis of the minimum funding necessary to maintain their business operations and has limited the amount of the post-petition loan to such amount. To obtain the use of the necessary funds, the Debtors have negotiated with the DIP Lender with respect to it providing the necessary funds in the form of the DIP Credit Facility.”

Key Terms of the DIP Financing

• Borrowers: The Debtors, YogaWorks, Inc. and Yoga Works, Inc.
• DIP Lender: Serene Investment Management, LLC and its affiliates including without limitation Yogaworks Investment Fund, LLC
• Commitment: Total of $3.35mn in two draws: $1.0mn upon entry of the Interim DIP Order and $2.35mn upon entry of the Final DIP Order with $1,200,000 to be distributed to the Debtors and $1,150,000 to be held in an escrow account maintained by externa legal counsel to the Debtors and released to Debtors seven (7) days prior to the hearing on confirmation of the Debtors’ plan with the consent of GHP.
• Interest Rates: Not applicable. The DIP Credit Facility is interest free.
• Term/Maturity: 
• Term: The DIP Agreement shall become effective on the Closing Date and, subject to Section 12.8, shall continue in full force and effect for so long as any Obligations remain outstanding or Lender has any obligation to make Credit Extensions under the DIP Agreement. Notwithstanding the foregoing, Lender shall have the right to terminate its obligation to make Credit Extensions under the DIP Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Lender’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.
• Maturity Date: If the DIP Lender is not the successful bidder at the Asset Sale, the Maturity Date is the earlier of (i) the closing of the Bankruptcy Sale to any purchaser other than the Stalking Horse Purchaser; (ii) the effective date of the Debtors’ chapter 11 plan; (iii) entry of an order by the Bankruptcy Court converting the Cases to a proceeding or proceedings under Chapter 7 of the Bankruptcy Code; (iv) entry of a final order by the Bankruptcy Court dismissing the Cases; or (v) the date of termination of the DIP Credit Facility and the acceleration of any outstanding extensions of credit under the Loan in accordance with the terms of the DIP Agreement.
• Milestones:The Debtors shall conduct a sale of substantially all of the assets of the Debtors in accordance with following Milestones:
  • Deadline to file sale motion: 5 calendar days after the Petition Date;
  • Deadline to obtain entry of the interim DIP order: 5 calendar days after the Petition Date;
  • Deadline to obtain bidding procedures order: 30 calendar days after the Petition Date;
  • Deadline to obtain entry of the final DIP order: 30 calendar days after the Petition Date;
  • Deadline to obtain sale order: 60 calendar days after the Petition Date; 
  • Deadline to file the Plan and Disclosure Statement: 15 days after entry of the sale order;
  • Deadline to for order approving Disclosure statement: 60 calendar days after entry of the sale order; 
  • Deadline to obtain confirming the Plan: 90 calendar days after entry of the sale order; and 
  • Deadline to have the effectiveness declared: 100 calendar days after entry of the sale order.

Prepetition Indebtedness

Prior to the Petition Date, the Debtors had outstanding funded debt in the principal amount of $10.0mn with Avidbank. The Credit Agreement and related documents were subsequently assigned by Avidbank to Great Hill Equity Partners V, LP (“GHP”) and then assigned prior to the Petition Date by GHP to Serene (the “GHP Loan”). The GHP Loan is secured by a senior lien on substantially all of the assets of YogaWorks and Yoga Works. As of the Petition Date, $10.0mn remains outstanding under the GHP Loan, plus accrued and unpaid interest, fees and expenses.

The Debtors owe material amounts, on an unsecured basis, to their landlords, totaling at least $5.4mn. The Debtors owe other unsecured debts to trade vendors and the like of approximately $2.0mn, plus $1.0mn in a wage and hour litigation settlement, and another approximately $800k for taxes, wages and other debts likely entitled to priority status.

About the Debtors

According to the Debtors: “YogaWorks is a leading provider of progressive and quality yoga that promotes total physical and emotional well-being. YogaWorks caters to students of all levels and ages with both traditional and innovative programming. It is also an international teaching school, cultivating the richest yoga talent from around the globe and setting the gold standard for teaching.”

Consolidated DIP Budget [Docket No. 133]

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