November 21, 2019− Bumble Bee Parent, Inc. and four affiliated Debtors (“Bumble Bee” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-12502. The Debtors, one of North America’s largest branded shelf-stable seafood providers, are represented by Pauline K. Morgan of Young Conaway Stargatt & Taylor, LLP. Further board-authorized engagements include (i) Paul, Weiss, Rifkind, Wharton & Garrison LLP as general bankruptcy counsel, (ii) AlixPartners, LLP (“Alix”) as financial advisor, (iii) Houlihan Lokey, Inc as investment banker and (iv) Prime Clerk as claims agent.
The Debtors’ lead petition notes between 1 and 50 creditors; estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $100.0mn and $500.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) FCF Co., Ltd. ("FCF," $50.5mn trade debt), (ii) U.S. Dept of Justice ("DOJ," $17.0mn settlement) and (iii) Envases Universales de Mexico SAPI de CV ($2.4mn trade debt).
In a press release announcing the filing (jingle here), the Debtors advised that they had “entered into an asset purchase agreement with affiliates of FCF Co., Ltd., which has agreed to acquire the company’s assets for approximately $925 million. To facilitate the sale and reduce its debt burden caused by recent and significant legal challenges, the company has initiated proceedings under chapter 11 of the U.S. Bankruptcy Code in the District of Delaware. Bumble Bee has received new financing commitments from its existing lenders that will provide sufficient liquidity to fund the business through the closing of the sale."
The press release continues, "Bumble Bee intends to file a bid procedures and sale motion along with the purchase agreement promptly. FCF will serve as the 'stalking horse' purchaser for the sale process. As part of the sale transaction, Bumble Bee’s Canadian affiliate, Connors Bros. Clover Leaf Seafoods Company ('CBCLS'), will be initiating proceedings under the Companies' Creditors Arrangement Act (the 'CCAA')."
Jan Tharp, President and Chief Executive Officer for Bumble Bee, added "It is our clear intent that all U.S. and Canadian operations continue uninterrupted. Employees will get paid, our customer partners can count on us to continue delivering outstanding brands and services, and vendors will be paid in the ordinary course of business."
Proposed Sale to FCF
Further to "a robust marketing process," on November 21, 2019, the Debtors and the CCAA Debtors entered into a stalking horse asset purchase agreement (the “Stalking Horse APA”) with certain affiliates of FCF for the sale of substantially all of the Company’s assets at a total implied enterprise value of up to $930.6 million, comprised of $275.0mn of cash, the assumption of the remaining $17.0mn of the DOJ Fine, and the roll-over of up to $638.6mn in outstanding term loan indebtedness. The Stalking Horse APA preserves the Company’s businesses as going concerns and contemplates the employment of nearly all of the Company’s employees.
Debtor-in-Possession (“DIP”) Financing
The Debtors’ pre-petition secured lenders have agreed to provide DIP financing consisting of (i) a new money multiple draw term loan (the “Term Loan DIP Facility”) of up to $80.0mn ($40.0m upon entry of an interim DIP order and $40.0mn upon issuance of a final DIP order) and (ii) a new asset-based revolving credit facility in an amount not to exceed $200.0mn, provided by the Debtors' pre-petition ABL Lenders that provides up to (i) $160.0mn of availability to the U.S. ABL borrower and (ii) $40.0mn of availability to the Canadian ABL Borrower. Wells Fargo Capital Finance, LLC will act as the administrative agent to the ABL DIP Facility and Brookfield Principal Credit LLC will act as the administrative agent to the Term Loan DIP Facility.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “McNeil Declaration”) [Docket No. 17], Kent McNeil, the Debtors' Chief Financial Officer detailed the events leading to the Debtors' Chapter 11 filing. the McNeil declaration states: "The Debtors have recently experienced financial distress due to a number of factors. First, certain legal matters have adversely impacted the Debtors. In 2017, the United States Department of Justice (the ‘DOJ’) brought criminal charges against Bumble Bee Foods, alleging price-fixing in violation of the Sherman Antitrust Act, which resulted in a plea agreement (as amended, the ‘DOJ Plea Agreement’), requiring the payment of a $25 million criminal fine over five years (the “DOJ Fine”), as more fully described below. Civil suits from direct and indirect purchasers of the Debtors’ products (the “Civil Litigation”) were subsequently commenced claiming damages arising out of this alleged price-fixing. The DOJ Fine, the Civil Litigation, and related proceedings have resulted in the Debtors spending tens of millions of dollars in defense costs and have negatively impacted their businesses. 8.Beleaguered by the overhang and expense of the Civil Litigation and the DOJ Fine, the Debtors found themselves facing an imminent event of default under their Term Loan Agreement (as defined below) in the spring of 2019 as a consequence of a non-Debtor parent company’s breach of the maximum total net leverage ratio permitted under the Term Loan Agreement for the fiscal quarter ended December 31, 2018. The occurrence of that event of default would also have prevented the Debtors from delivering an unqualified audit opinion, which could have resulted in a second default. The Debtors’ Term Loan Lenders (as defined below) agreed to a series of short-term limited waivers of this event of default through the Petition Date. In light of these considerable challenges, the Debtors began to consider and pursue strategic alternatives."
The Antitrust Litigation
In 2015, attorneys at the DOJ reviewed information related to Bumble Bee Foods’ proposed merger with Thai Union Group P.C.L. (the parent entity of Chicken of the Sea) and, based on that review, alleged that anticompetitive conduct occurred among the producers of Bumble Bee, Star-Kist, and Chicken of the Sea branded canned tuna. On July 15, 2015, and October 1, 2015, Bumble Bee Foods received grand jury subpoenas relating to an investigation by the DOJ into potential antitrust violations based on alleged price-fixing in the packaged seafood industry.
On May 5, 2017, Bumble Bee Foods entered into the DOJ Plea Agreement in which Bumble Bee Foods agreed to enter a guilty plea in connection with the DOJ’s ongoing criminal investigation, which DOJ Plea Agreement was amended on August 2, 2017. Thereafter, a one-count felony charge for violations of the Sherman Antitrust Act was filed on May 8, 2017 in the United States District Court for the Northern District of California in San Francisco. Under the DOJ Plea Agreement, Bumble Bee Foods agreed to the payment of a $25 million. As of the Petition Date, $17 million of this criminal fine is outstanding.
Multidistrict Civil Litigation
Following the DOJ’s investigation, fifty (50) putative class action complaints were filed against Bumble Bee Foods and other defendants alleging violations of Sections 1 and 3 of the Sherman Antitrust Act. In August of 2015 a motion was filed seeking to transfer and centralize these cases in a single federal district court and in 2019, that court certified three (3) classes: (i) direct purchaser plaintiffs, i.e., retail sellers and distributors; (ii) commercial food preparer plaintiffs, i.e., indirect purchasers of food-service-size products; and (iii) indirect purchaser end-payer plaintiffs, i.e., individual consumers who bought tuna for personal consumption. The Debtors have engaged in settlement discussions with the plaintiffs in this civil litigation.
Other Financial Pressures
The McNeil Declaration continues, “ The antitrust litigation facing the Debtors has negatively impacted the Debtors’ cash flow and dragged on financial performance and overall EBITDA. The DOJ Plea Agreement resulted in the Debtors incurring a $25 million fine owed to the federal government, of which the Debtors have now paid $8 million, including $4 million in August 2019. And the Debtors’ legal defense costs resulting from the Civil Litigation have been substantial. The Company’s overall Adjusted EBITDA has declined by approximately 20% from 2015 to 2018. This negative trend contributed to the Company’s inability to maintain the maximum total net leverage covenant required under the Term Loan Agreement, which would have resulted in a potential event of default under the Term Loan Agreement in March 2019, when the Company delivered its 2018 audited financial statements. In light of this potential default, the Debtors began focusing on potential deleveraging transactions to address their covenant non-compliance. Finally, in the weeks leading up to the Petition Date, the Debtors’ liquidity further suffered as a result of a shortening of available payment terms among certain of their large foreign vendors, which coincided with news reports regarding the Debtors’ financial difficulties as well as the struggles of one of their largest competitors. The Debtors were able to address this contraction in payment terms through managing their payables and obtaining important concessions from FCF in August 2019, when FCF agreed temporarily to provide additional relief from the already favorable payments terms the Debtors enjoyed with FCF, but the Debtors remain at risk of further contractions in payment terms and have limited borrowing availability under the U.S. Revolver to weather any further significant contractions.
Pre-Petition Capital Structure
As of December 31, 2018, the Debtors reported total assets of approximately $1.0bn and total liabilities of approximately $1.0bn. As of the Petition Date, the obligations outstanding under the Debtors’ pre-petition secured facilities are estimated at no less than the following amounts:
| ABL Facility | ||
|
U.S. Revolver
|
$151,452,405 | |
|
Canadian Revolver
|
$35,365,193 | |
| Total ABL Facility | $186,817,599 | |
| Term Loan Facility | ||
|
U.S. Term Loan
|
$505,902,964 | |
|
Canadian Term Loan
|
$143,330,850 | |
| Total Term Loan Facility | $649,233,814 | |
|
Total |
|
$836,051,412 |
About the Debtors
The Debtors are headquartered in San Diego, California and conduct operations in various other domestic and international locations. The Debtors, together with their non-Debtor affiliates based in Canada, comprise one of North America’s largest branded shelf-stable seafood providers. The Debtors, together with their non-Debtor affiliates (collectively, the “Company”), offer a full line of canned and pouched tuna, salmon, sardines, and specialty seafood products marketed in the United States under leading brands including Bumble Bee, Brunswick, Sweet Sue, Snow’s, Beach Cliff, and Wild Selections and marketed in Canada primarily under the Clover Leaf brand. Due to the quality, nutritional value, and affordability of the Company’s products, this diverse product line-up is sold by virtually every major United States and Canadian food retailer and in all major food channels, including supermarkets, mass merchandisers, drug stores, warehouse clubs, and dollar stores. Over the last century, the Debtors, their affiliates, and their predecessor companies have been leaders in the shelf-stable seafood industry, and their brands enjoy nearly 90% consumer awareness levels in the United States and Canada.
According to the Debtors, "Bumble Bee’s full line of high-quality seafood and specialty protein products are marketed in the U.S. under leading brands including Bumble Bee®, Brunswick®, Snow’s®, Wild Selections®?and Beach Cliff®, and in Canada under the Clover Leaf®?brand. For more information on Bumble Bee, visit?www.BumbleBee.com. Join fans of Bumble Bee and healthy living at? www.facebook.com/BumbleBeeSeafoods?and follow us on Twitter?@BumbleBeeFoods, on Pinterest?www.pinterest.com/BumbleBeeFoods?and Instagram?@BumbleBeeFoods."
The Debtors's parent company is Clover Leaf Seafoods Company, a leading marketer of canned seafood in Canada. Headquartered in Markham, Ontario, it sells canned, shelf-stable, and frozen goods under the Clover Leaf and Brunswick brands. The company's products include tuna, salmon, oysters, mussels, clams, shrimp, crab, lobster and sardines. Clover Leaf Seafoods is in turn owned owned by British private-equity firm Lion Capital LLP.
Corporate Organizational Chart
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