December 11, 2019 – The Debtors filed a Joint Chapter 11 Plan of Reorganization and Liquidation and a related Disclosure Statement [Docket Nos. 66 and 67, respectively]. In an unusual combination of reorganization and liquidation, the Debtors intend to reorganize around a single Debtor ("GT Forge") who will hold on to the Debtors' accumulated net operating losses ("NOLs") while liquidating the other five Debtor entities. The Debtors' ultimate parent, GT Gettaxi Limited (“Gett,” organized in Cyprus and based in Israel) is to serve as Plan sponsor of the reorganized Debtors who intend to shift their operational focus from a B2C business model, apparently rendered unsustainable by changes in New York wage legislation, to a B2B (ie, corporate transportation) model that is not impacted by those regulations. Presumably all the while, cruising Wall Street looking for a profit-making entity willing to ante up a fare for the Debtors' NOLs.
In a November 18th press release announcing the abrupt shuttering of its Juno businesses, Gett also announced "a strategic partnership with Lyft to enable Gett's corporate clients to access rides in the United States beginning next year.” For its part, Lyft has been curiously quiet about the proposed partnership and it is unclear how Lyft, which reported more than $2.2bn of losses through Q3 2019, could benefit from the Debtors' NOLs. If the Debtors are looking for a post-emergence Lyft riding the value of their NOLs, they may need to look somewhere else.
The Disclosure Statement provides: "The Plan effectuates the reorganization of GT Forge, Inc. (‘GT Forge’ or the ‘Reorganized Debtor’, as applicable) and the liquidations of (i) Juno, (ii) Juno Oregon LLC, (iii) Omaha LLC, (iv) Sabo One LLC, and (v) Vulcan Cars LLC (collectively, the ‘Liquidating Debtors’)….the Plan seeks to preserve the net operating losses accrued by Debtor GT Forge to facilitate the Reorganized Debtor’s re-entry into the market as a business-to-business (‘B2B’) provider.
Under the Plan, the Plan Sponsor [ie Gett] will provide the Plan Sponsor Contribution for the purpose of making payments under the Plan, including distributions for Holders of General Unsecured Claims. With the exception of GT Forge, which will emerge from these Chapter 11 Cases as the Reorganized Debtor and commence new business operations, the assets of the Debtors will be vested in the Settlement Trust and will be liquidated for the benefit of Holders of General Unsecured Claims under the supervision of the Settlement Trustee.
Except as otherwise provided in the Plan, on and after the Effective Date, all property of GT Forge and its Estate, including any ‘net operating losses’ or similar tax attributes, will vest in the Reorganized Debtor free and clear of all Claims, Liens, charges, other encumbrances and Interests."
The Disclosure Statement effuses: "The reorganization of GT Forge allows the Company to leverage its existing relationships and reputation as an innovative player in the ride-hailing market while shifting its focus from B2C efforts to B2B partnerships and services. Refocusing on the B2B sector will enable increased collaboration between the Reorganized Debtor and Juno’s former competitors and allow the Reorganized Debtor to operate largely free from the regulatory burdens imposed on B2C operations, as discussed below. Moreover, the Plan seeks to preserve the net operating losses accrued by GT Forge prior to the commencement of these Chapter 11 Cases to facilitate the Reorganized Debtor’s re-entry into the market as a B2B provider."
The Disclosure Statement does not provide detail as to the value of the NOLs, but
The following is a summary of classes, claims, voting rights and expected recoveries (Defined terms are as in the Plan and/or Disclosure Statement):
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
- Class 2 (“Secured Guaranty Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is 100%.
- Class 3 (“General Unsecured Claims”) is impaired and entitled to vote the Plan. The estimated recovery is TBD.
- Class 4 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote the Plan. The estimated recovery is 0%.
- Class 5 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote the Plan. The estimated recovery is 0%.
- Class 6 (“GT Forge Interests”) is unimpaired or impaired, deemed to accept or reject and not entitled to vote on the Plan. The estimated recovery is 100% or 0%.
- Class 7 (“Liquidating Debtor Interests”) is impaired, deemed to reject and not entitled to vote the Plan. The estimated recovery is 0%.
Pre-Petition Capital Structure
Prior to the Petition Date, the Debtors’ operations were funded on an unsecured basis by GT Gettaxi Limited (the “Parent” or the “DIP Lender”) through intercompany transfers. Sberbank Investments (“Sberbank”), as Security Agent, holds a perfected, first-priority all asset lien against Debtor GT Forge, Inc. (“GT Forge”), which is based on a secured guaranty granted by GT Forge, including its partnership interest in Debtor Juno USA, LP (“Juno”), in connection with the Parent’s secured financing facility (the “Sberbank Lien”). In addition, Juno maintains a money market account at Citibank, which collateralizes two letters of credit covering Juno’s corporate leases in Manhattan and Portland, Oregon (the “LCs”). The Debtors have no other secured financing obligations.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Kibler Declaration”) [Docket No. 2], Melissa Kibler, the Debtors' recently appointed Chief Restructuring Officer detailed the events leading to Debtors' Chapter 11 filing. The Kibler Declaration details the confluence of legislation, litigation and location (all linked to the Debtors' chosen market of New York City) and provides: "Many of Juno’s financial challenges have been imposed upon the Company by local legislative forces. New York City’s recent wage legislation, which was approved by the TLC in December of last year and was implemented this past February, instituted a ‘pay floor’ for ride-hail drivers, who—as independent contractors—are not otherwise governed by minimum-wage legislation. The new rules require that drivers receive a minimum of $17.22 per hour, regardless of the number of rides performed (and resulting revenue generated) during that time.
The impact of these rule changes was drastic for the Company. Not only did ridership decrease as a result of necessary increased pricing—for example, in 2017, Juno facilitated approximately 47,000 rides per day, whereas immediately prior to filing these Chapter 11 Cases, rides had decreased to fewer than 25,000 per day—but average hourly driver earnings decreased, too. Whereas certain competitors responded to these challenges by capping the number of drivers who could access their application at any given time, Juno refused to implement this approach, given its core driver-centric values. This resulted in increased exposure to the utilization rate ‘pay floor’ rules, which Juno and its affiliates have attempted to challenge in New York state court.
To be sure, these rule changes have impacted all of the major ride-hailing companies in the market. But while the larger companies are able to sustain such a hit given their significant financial backing and diverse presence around the country (and the globe), which enables them to subsidize rides, and offer discounts and promotions, Juno, on the other hand, which operated only in New York, faced swelling losses and an unsustainable financial future in the B2Cmarketplace.
The Company faces four different fronts of litigation: (i) two multi-million dollar class-action lawsuits brought by drivers in connection with the terminated RSU program; (ii) three patent infringement lawsuits brought by certain competitors; (iii) multiple personal injury lawsuits brought by riders, the majority of whom allege to have been passengers in an automobile accident while riding with a Juno driver; and (iv) multiple unemployment insurance suits brought by drivers, under which the drivers seek a determination that they are employees, not independent contractors, and are thus allegedly entitled to certain unemployment benefits. The Company contests the allegations in each of the aforementioned lawsuits and actions, and has vigorously defended itself against these lawsuits over the last several months and—in some cases—years.
But in the meantime, leading up to the Petition Date, the Company spent hundreds of thousands of dollars per month in legal defense fees. And with respect to the driver and rider suits, no end appeared in sight, as opportunistic litigants continued to try their luck in the court system at the Company’s expense. As a result, the Company’s management team was forced to expend valuable time and resources devoted to these legal matters, necessarily impeding on the team’s managerial and operational efforts to sustain and support the growth of the business"
Debtors Organizational Structure (Debtors in Blue)
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