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CraftWorks Parent, LLC – Steakhouse and Craft Brewery Operator Files Chapter 11 Citing Strain of Logan’s Roadhouse Acquisition; Prepetion Lender Fortress to Pace Sale Process as Stalking Horse and Provide $23mn of DIP Financing

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March , 2020 – CraftWorks Parent, LLC and 37 affiliated Debtors (“CraftWorks” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-10475. The Debtors, the nation’s leading operator and franchisor of steakhouses and craft beer brewery restaurants, are represented by Domenic E. Paciti of Klehr Harrison Harvey Branzburg LLP. Further board-authorized engagements include (i) Katten Muchin Rosenman LLP as general bankruptcy counsel, (ii) M-III Advisory Partners, LP as financial advisors, (iii) Configure Partners, LLC as investment bankers, (iv) Hilco  Real Estate, LLC as real estate advisors and (v) Prime Clerk as claims agent. 

The Debtors are owned by private equity house Centerbridge Partners which formed the Debtors following their 2010 acquisitions of the Gordon Biersch Restaurant Group and the Rock Bottom Restaurant Group. 

In 2019, the Debtors generated more than approximately $720.0 million in revenue and approximately $31.5 million in adjusted pro forma EBITDA and served over 65,000,000 meals.

In their Declaration (defined below), the Debtors point to disappointing results and stretched liquidity following their acquisition of the Logan's Roadhouse ("LR") business in November 2018. The Debtors' current CEO Hazam Ouf, who drafted the Declaration, joined the Debtors as part of the LR acquisition and had served as the LR CEO from January 2017; joining shortly after LR emerged from an earlier bankruptcy. Prior to joining LR, Ouf served as CEO of American Blue Ribbon Holdings which filed for bankruptcy in January 2020.

The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $500.0mn and $1.0bn. After listing 41 landlords with "undetermined" claims, the Debtors list their three largest unsecured creditors as (i) Wells Fargo Bank, National Association ($34.0mn unsecured note), (ii) Marblegate Special Opportunities Master Fund, L.P ($8.2mn unsecured note) and (iii) FS KKR Capital Corp  ($7.3mn unsecured note).

In a press release announcing the filing, the Debtors advised that: "The agreement with affiliates of Fortress Credit Co LLC ('Fortress'), senior lenders to the Company, provides total consideration of at least $138 million plus the assumption of certain liabilities. The transaction is expected to result in a reduction of the Company's debt by more than $140 million, or more than 60 percent, and additional liquidity for future investment. Today's announcement follows the closure in recent weeks of 37 of the Company's underperforming locations.

DIP Financing

A Fortress affiliate has committed to provide $23.0mn of new money debtor-in-possession ("DIP") financing to the Debtors. 

Sales and Marketing Process

Fortress has agreed to serve as a stalking horse in an anticipated section 363 auction/sale process that will involve the sale of substantially all of the Debtors’ assets. The Debtors value the credit bid at $138.0mn and significantly Fortress has not asked for a break-up fee or an expense reimbursement. There is a minimum bid increment of $250k. As at the Petition date, the Debtors’ investment banker, Configure Partners, LLC has contacted more than 268 parties of which 27 have executed nondisclosure agreements.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Declaration”), Hazem Ouf, the Debtors' Chairman and Chief Executive Officer name, detailed the events leading to the Debtors' Chapter 11 filing. The Declaration states: "Since the closing of the Logan’s Acquisition, the Debtors’ business has been hampered by an overleveraged balance and lack of sufficient liquidity to fund their operations, including necessary capital expenditures and investment in their restaurants. These issues were compounded by other internal and external factors, such as underperforming stores, unfavorable leases, redundant selling, general and administrative expenses and a general decline in same-store traffic and sales. The primary reasons for the underperformance were lower topline sales and deterioration in gross margin. The Logan’s Acquisition transaction model forecasted fiscal year 2019 revenue based on a same-store sales growth rate of 1.5% with a 72.5% gross margin; however, actual same-store sales for fiscal year 2019 declined by approximately 1.0%, resulting in a total volume-driven gross margin loss of approximately $27.0 million. In addition, occupancy expense was under-forecasted by approximately $2.0 million. Such amounts, however, were by approximately $12.0 million of labor cost reductions, approximately $5.0 million of operating expense reductions and $4.0 million of corporate general and administrative expense reductions. 

The Debtors are also experiencing pressures that impact the casual restaurant industry. Many major restaurant chains in the U.S. closed some locations or struggled last year. The casual dining industry is undergoing continued wage growth, and adjustments to minimum wage laws in some jurisdictions are expected to increase costs for the industry. Continued competition in the segment is also putting pressure on casual dining demand while margins are being squeezed by online delivery services. Many major casual dining brands have experienced slow growth and the Debtors’ major competitors have undertaken brand revitalization investments to appeal to changing tastes. Similarly, the craft brewing and restaurant industry has faced considerable challenges given the proliferation of competition. Finally, the Debtors made cash lease payments on a number of underperforming stores, which caused a substantial burden on their liquidity."

Prepetition Debt

As of the Petition date, the Debtors had approximately $235.4mn in outstanding debt.

Facility

Agent/ Lender/ Issuer

Borrowers/ Guarantors

Secured/ Unsecured

Principal Amount Outstanding

First Lien Loans – Term Loan and Revolving Line of Credit

Fortress Credit Co LLC, as agent

All Debtors other than CW Parent and CW Intermediate

Secured

$131.7mm

First Lien Loans – Letters of Credit

Wells Fargo Bank, National Association,

All Debtors other than CW Parent and CW Intermediate

Secured

$4.7mm

Second Lien Loans – Term Loan

Wells Fargo Bank, National Association, as agent

All Debtors other than CW Parent and CW Intermediate

Secured

$35.0mm

Seller Notes

Roadhouse Holding Inc.

All Debtors other than CW Parent and CW
Intermediate

Unsecured

$30.0mm

Recovery Note

Wells Fargo Bank, National
Association

CraftWorks Parent, LLC

Unsecured

$34.0mm

 

About the Debtors

According to the Debtors: "CraftWorks Holdings is the nation's leading operator and franchisor of full-service dining restaurants, spanning a national footprint of more than 330 restaurants and breweries in 39 states and the District of Columbia. The Company's diverse portfolio of restaurant brands includes Logan's Roadhouse, Old Chicago Pizza & Taproom, and a collection of restaurant-brewery brands, including Rock Bottom Restaurant & Brewery and Gordon Biersch Brewery Restaurant. CraftWorks Holdings also operates a collection of specialty restaurant concepts including ChopHouse & Brewery, Big River Grille & Brewing Works, AIA Ale Works Restaurant & Taproom, Ragtime Tavern Seafood & Grill, Seven Bridges Grille & Brewery, and Sing Sing, a Big-Bang dueling pianos concept."

The Debtors are headquartered in Nashville, Tennessee and have an additional support office in Broomfield, Colorado. 

Corporate Structure Chart

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The post CraftWorks Parent, LLC – Steakhouse and Craft Brewery Operator Files Chapter 11 Citing Strain of Logan’s Roadhouse Acquisition; Prepetion Lender Fortress to Pace Sale Process as Stalking Horse and Provide $23mn of DIP Financing appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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