January 27, 2020 − BL Restaurants Holding, LLC and three affiliated Debtors (d/b/a Bar Louie, “Bar Louie” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-10156. The Debtors, who operate approximately110 gastrobars, are represented by Domenic E. Pacitti of Klehr Harrison Harvey Branzburg LLP. Further board-authorized engagements include (i) Configure Partners, LLC as investment banker, (ii) Carl Marks Advisory Group LLC as restructuring advisor (also to provide a chief restructuring officer) and (iii) Epiq Bankruptcy Solutions, Inc. as claims agent
The Debtors’ lead petition notes between 5,000 and 10,000 creditors; estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $50.0mn and $100.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Sysco ($3.0mn trade debt), (ii) A&Z Auburn Hills LLC ($2.9mn note) and (iii) A&Z Novi LLC ($2.9mn note).
Goals of the Chapter 11 Filings
The Debtors state: "Contemporaneously with the filing of these chapter 11 cases, the Debtors filed their sale procedures motion and sale motion with the Court to approve the asset purchase agreement with BLH Acquisition Co., LLC [see more below] to serve as the stalking horse purchaser, establish a formal sale timeline, which will include an auction process, with a goal of exposing the existing asset purchase agreement to higher and better offers."
Marketing Efforts
The Declaration (defined below) notes: "After its engagement, [investment banker] Configure prepared a marketing teaser and confidential information memorandum that it used to market the sale of the Debtors’ assets. As of the Petition Date, Configure contacted approximately 101 potential strategic buyers and 153 financial buyers, out of which 73 executed confidentiality agreements and received the confidential information memorandum and access to key documents in an online data room. The Debtors received initial indications interest from 7 potential buyers and engaged in additional diligence discussions including management presentations in Dallas. Out of the 7 potential buyers, three parties submitted letters of Intent in December 2019. Meanwhile, the Debtors continued to suffer a drain on cash flow from its underperforming stores. Consequently, it became apparent, that the Debtors liquidity position would require that the sale process continue in a chapter 11 process. Rather than commence these chapter 11 cases with no stalking horse, in December 2019, concurrently with the sale process, the Debtors and its advisors had commenced discussions with the Prepetition First Lien Secured Lenders and the Prepetition First Lien Secured Agent to serve as a “stalking horse” via a credit bid and ultimately executed an asset purchase agreement with BLH Acquisition Co., LLC to serve as the stalking horse in its sale process.
BLH Acquisition Co., LLC Asset Purchase Agreement & DIP Financing
BLH Acquisition is an entity created by the Debtors' pre-petition lenders to serve as a credit-bidding stalking horse in a section 363 auction/sale process. The stalking horse asset purchase agreement detailing the terms of a $82.5mn credit bid is attached to the Debtors' lead petition. It is signed by Jonathan E. Balch on behalf of BLH Acquisition. Mr Balch is a Managing Director at Antares Capital ("Antares"). Mr Balch also signs the Debtors' proposed $22.0mn debtor-in-possession ("DIP") credit facility on behalf of Antares as agent, sole lead arranger and bookrunner. Under the proposed DIP arrangements, Antares is set to provide $12.8mn of the DIP revolving loan commitments, with MidCap Financial Trust fronting the $9.2mn balance.
Pre-Petition Capital Structure
As of the Petition Date, the Debtors’ capital structure consisted of outstanding funded-debt obligations in the aggregate principal amount of approximately $87.0mn, and unsecured trade of $8.0mn, and other potential unsecured debt of approximately $6 million, exclusive of potential lease termination claims.
- Prepetition First Lien Secured Credit Facility. Debtor BL Restaurant Operations, LLC is party to a March 27, 2014 “Prepetition First Lien Secured Credit Agreement” with Antares serving as agent. As of the Petition date, the Debtors owed an aggregate principal amount of not less than $48.0mn in respect of term loans issued under this agreement and $14.4mn in respect to revolving loans.
- Prepetition Second Lien Secured Credit Facility. The Debtors are also party to an August 30, 2017 "Subordinated Credit Agreement" with BL Restaurants Group Holding Corp.serving as agent. As of the Petition date, the Debtors owed $23.6m under this agreement.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Declaration”), Howard Meitiner, the Debtors' Chief Restructuring Officer detailed the events leading to the Debtors' Chapter 11 filing. The Declaration states: "Over the past several years, the opening of new locations was the primary driver for sales and profit growth for the Company. This growth was partially funded through new debt, but also utilized cash flow from operations, which ultimately over time restricted liquidity otherwise needed for store refreshes and equipment maintenance and modernization, resulting in inconsistent delivery of the brand promise across the system. This inconsistent brand experience, coupled with increased competition and the general decline in customer traffic visiting traditional shopping locations and malls, resulted in less traffic at the Company’s locations proximate to shopping locations and malls and contributed to sales falling short of forecast. These customer declines were also driven by major changes in consumer behavior, including the general national trend away from casual dining. The combination of these factors had a particularly major impact on a significant segment of the Company’s footprint.
In 2018, a new CEO was hired, and a new management team was assembled. This new team implemented a turnaround strategy including the following initiatives: (a) improving the guest experience through better customer service and store maintenance; (b) improving the quality of the food offerings to better compliment a world class beverage program; and (c) redefining the brand essence and developing a new advertising campaign to communicate to the guest base.
These initiatives have positively impacted the Company’s performance in 72 of the 110 corporate locations. However, despite successful execution of these programs, 38 of the locations have seen their sales and profits decline at an accelerating pace. These declines forced a reduction of expenses and other investments, with the inevitable impact being felt throughout the whole system. Despite the success of these initiatives, the Company’s lack available liquidity has resulted in delays to the broader roll out of these initiatives to other locations and curtailed the ability to implement further marketing related activities compared to others in the industry, resulting in a SSS decline in 2019 of 4.2%.
The 38 locations that represented a major, ongoing challenge to the Company generated a loss of $4.0 million loss in 2019. Further, the surrounding environment at these locations has seen significant declines in customer traffic and coupled with increasing rental and other store level costs, could no longer absorb the continuing decline in sales at these locations. These 38 locations saw SSS decline of 10.9% in 2019, whereas the rest of the system only experienced a 1.4% SSS decline. The bulk of the decline occurred in the 4th quarter 2019, when financial conditions and a lack of liquidity forced management to significantly reduce marketing spend.
About the Debtors
The Debtors were founded in 1991 in Chicago, Illinois around an original concept of locally themed bars catering to the specific demographics within each neighborhood location and by the end of 2019, had grown to 110 owned locations and 24 franchised locations through it franchising program, operating in 26 states and the District of Columbia. The Company’s gastrobars are located in a variety of locations, including lifestyle centers, traditional shopping malls, event locations, central business districts and other stand-alone specialty sites. Each gastrobar operates under the “Bar Louie” brand name and offers a wide range of beer, liquor and curated food offerings.
The Company's revenue for the twelve months ended December 31, 2019, was $252.0mn down 3.7% from the prior year.
The Debtors employ approximately 4,141 full-time and part-time hourly employees, approximately 370 full time restaurant salaried employees, and 55 salaried employees at the corporate headquarters in Addison, Texas. None of the Debtors' employees are covered by a collective bargaining agreement.
Structure Chart
the Debtors'
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The post BL Restaurants Holding, LLC – Bar Louie Gastrobar Operator Files Chapter 11 as Underperforming Restaurants Sink 110-Restaurant Chain, Pre-Petition Lender Antares to Play Stalking Horse Role with $82.5mn Credit Bid appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.