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Sugarfina, Inc. – Requests Court Approval of Bidding Procedures and Stalking Horse APA, Stalking Horse Poised to Credit Bid Debt Assigned by Goldman Sachs as Part of $13mn Purchase Price


September 10, 2019 – The Debtors filed a motion requesting each of a bidding procedures order and a sale order [Docket No. 62]. The bidding procedures order would (i) approve bidding procedures for the sale of substantially all of the Debtors' assets (the "Sale"), (ii) authorize the Debtors to enter into a stalking horse asset purchase agreement (the “APA”) with Cube Holdings, LLC ("Candy Cube" or the “Stalking Horse Bidder”) and provide the Stalking Horse Bidder with certain bidder protections, and (iii) approve a proposed auction/sale schedule. The sale order would authorize the Sale [Docket No. 62].

With this motion, the Debtors are looking to continue a marketing process that failed to attract interest in an out-of-court context and firm up its deal with Candy Cube, further to which Candy Cube has agreed to set the pace with a $13.0mn stalking horse bid (this nominally sweetened for the Debtors with a 20% post-emergence equity position in Candy Cube). After a Court-approved sale, the Debtors intend to discontinue operations, liquidate any remaining unsold assets and wind up their estates. 

Candy Cube is an acquisition entity formed by Los Angeles-based TerraMar Capital ("TerraMar") which describes itself as "an investment platform…that provides debt and equity capital to middle-market businesses facing an inflection point." TerraMar will also be providing some debtor-in-possession ("DIP") financing. 

As we previously reported, there is a reference to a success fee contained in the Debtors' DIP financing motion [Docket No. 21], which inferred that Goldman Sachs was considering the assignment of its pre-petition debt to TerraMar which would then use that debt to credit bid for the Debtors' assets. This normally routine assignment has been given heightened importance in light of the personal, and embarrassing, investment of Goldman Sachs CEO David Solomon in the Debtors' business.

That possibility has become reality as confirmed in the Debtors' motion and APA (attached to the proposed sale order as Exhibit A). The motion states: "The Stalking Horse Bidder shall be entitled to credit bid up to the full amount of the Termination Fee and the full amount of any secured debt of the Debtors for which the Stalking Horse Bidder is the lender by assignment or otherwise…The Stalking Horse Bidder shall have the right to credit bid the full amount of…the amount of the obligations under the Goldman Prepetition Loan Agreement (the 'Second Lien Loan') that Goldman (the 'Second Lien Lender') has assigned to the Stalking Horse Bidder at any time.

With respect to the purchase price, Candy Cube’s commitment to pay the Purchase Price will include a cash component and the credit bid of Candy Cube’s share of the debtor-in-possession financing that Candy Cube advanced as well as the credit bid of a portion of the second lien lender’s debt. Candy Cube’s credit bid of the second lien debt is based on an assignment of such debt and the result of an agreement between Candy Cube and the second lien lender, which amount starts at $2 million (which $2 million may be reduced at Closing (as defined in the Agreement) to increase the amount of cash that the Debtors receive at Closing) and potentially increases if there is an Auction."

The APA: Consideration and Bidder Protections

Consideration. The APA provides the following detail as to the Candy Cube purchase price which includes:

(i) aggregate (ie cash and credit bid) consideration of $13.0mn, reduced by, inter alia, 

  1. (a) the aggregate amount of cure costs for any assumed contracts (capped at $650k),
  2. (b) the aggregate amount of the Reserve Account for Retained Contracts determined in accordance with Section 5.10(a)(iv), 
  3. (c) the amount by which the aggregate book value accounts receivable is less than $1,646,962; 
  4. (d) the amount by which the acquired accounts receivable is less than the delivered accounts receivable; and
  5. (e) the cost value of acquired inventory 

(ii) Candy Cube’s issuance of 20% of its equity interests to the Debtors (see equity term sheet attached as Exhibit C to the APA), and 

(iii) the assumption of the Assumed Liabilities.

Bidder Protections. The Debtors and Candy Cube have agreed a “Termination Fee” which is comprised of (i) a break-up fee of $500k and (ii) the "actual, reasonable,and documented expenses" incurred by Candy Cube. The Debtors have also set a minimum overbid increment of $250k.

Proposed Key Dates:

  • Hearing on the Sale Motion for Bidding Procedures: September 24, 2019
  • Bid Deadline: October 4, 2019
  • Sale Objection Deadline: October 4, 2019
  • Auction: October 8, 2019
  • Sale Hearing: October 10, 2019

About the Debtors

The Debtors were co-founded in 2012 by Rosie O'Neill and Josh Resnick; O'Neill was formerly the director of marketing for Barbie at Mattel and Resnick sold  Pandemic Studios, his video game design firm to Electronic Arts in 2007 in a deal valued at $860 million.  “Rosie comes from toys,” Resnick , “I come from video games and now we’re in candy. Between the two of us we’ve got all the legal vices for kids covered.”

O’Neill was similarly ready for a change—as the director of marketing for Barbie at Mattel, she felt she’d hit the ceiling in terms of her long-term potential. She’d toyed with the idea of entering culinary school—a long-time goal—before meeting Resnick, but that night at the movies sealed the deal. “Rosie comes from toys,” Resnick commented in a Forbes interview, “I come from video games and now we’re in candy. Between the two of us we’ve got all the legal vices for kids covered.”

The Debtors' own Facebook page adds "Sweethearts Rosie O'Neill and Josh Resnick have dreamed of opening a luxury candy boutique ever since their third date, a screening of Willy Wonka and the Chocolate Factory. Inspired to create the first-ever candy store for grown-ups, the couple traveled the world in search of the finest candy makers to produce their exclusive and inventive line of confections. Best known for Champagne and Rosé-infused gummy bears, Sugarfina has been named 'World’s 50 Most Innovative Companies' and “World’s 10 Most Innovative Retailers” by Fast Company as it disrupts the $200B confections industry. Recognized as one of the 'World’s Most Beautiful Candy Shops' by Architectural Digest, Sugarfina opened its first boutique in Beverly Hills in 2013 and now has more than 50 locations across North America in major cities such as Los Angeles, New York, Boston, Chicago and Vancouver."

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The post Sugarfina, Inc. – Requests Court Approval of Bidding Procedures and Stalking Horse APA, Stalking Horse Poised to Credit Bid Debt Assigned by Goldman Sachs as Part of $13mn Purchase Price appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.

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