November 25, 2020 – The Court hearing the Dean & DeLuca New York cases confirmed the Debtors’ Fifth Modified Chapter 11 Plan of Reorganization [Docket No. 445].
On March 31, 2020, Dean & DeLuca New York, Inc. and six affiliated Debtors (“Dean & DeLuca” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 20-10916. At filing, the Debtors, a multi-channel retailer of premium gourmet and delicatessen food and beverage products, noted estimated assets between $10.0mn and $50.0mn, and estimated liabilities between $100.0mn and $500.0mn. In a subsequently filed Schedule A/B, the lead Debtor noted $598k of assets and $286mn of liabilities [Docket No. 56].
Plan Overview
The Debtors' memorandum in support of Plan confirmation [Docket No. 437] notes, “The Debtors have worked tirelessly over the course of these Chapter 11 Cases to develop and confirm a standalone reorganization plan that enjoys the support of all key constituencies and maximizes return to creditors while right-sizing their balance sheet to capitalize on market opportunity. Notwithstanding the Debtors’ pre-petition struggles and the near-total retail market shutdown during the global Covid-19 pandemic, which has coincided with the Chapter 11 Cases nearly to the day, the Debtors are now pleased to present a Plan that does in fact enjoy the support of all key constituencies and should provide meaningful distributions to their creditors.
As part of the Debtors’ efforts over the past few months, the Debtors have worked tirelessly with the Committee to resolve objections and potential litigation concerns. Ultimately, in October of this year the Debtors reached terms in principle with the Committee, which terms have now been accepted with non-substantive amendment by all of the Debtors’ most significant stakeholders, and which improve outcomes for all holders of General Unsecured Claims…Confirmation of the Plan will allow the Creditor Trust to be formed and vested with nearly $8 million in cash on the Effective Date; an additional $900,000 in cash within one (1) year of the Effective Date; and authority to pursue an array of Assigned Causes of Action for the benefit of unsecured creditors. The Creditor Trust will work to reconcile claims and distribute Creditor Trust Assets to holders of Allowed General Unsecured Claims, providing the Reorganized Debtors with a clean break to focus their efforts on restoration and growth of their global brand."
The Third Modified Disclosure Statement [Docket No. 352] provides, “Subject to confirmation of the Plan, upon the Effective Date, the Debtors will have reduced their debt from approximately $311 million to approximately $11 million, providing the Debtors with the capital structure and reduced debt service burden appropriate to carry on their operations. Upon exiting these Chapter 11 Cases, the Reorganized Debtors’ capital structure will consist of the Exit Facility in the aggregate principal amount of approximately $10 million, plus a five-year secured term loan of $750,000. The proceeds of the Exit Facility, together with cash on hand and cash from operations (including licensing operations), will be used to pay administrative claims, priority claims and the DIP Facility Claim, in full, and to make substantial distributions to their trade creditors, landlords and other Holders of General Unsecured Claims (other than Pace Development, Pace Food and the Bank). The Debtors respectfully submit that the Plan maximizes recoveries for the Debtors’ stakeholders, right-sizes the Debtors’ balance sheet and preserves the Debtors’ ability to operate and develop the value of their assets for the benefit of vendors, suppliers, landlords, and past and future employees.
The following is an overview of certain additional terms of the Plan:
- The Debtors will enter into an Exit Facility with the Bank (prepetition lender The Siam Commercial Bank Public Company Limited) providing approximately $10.0mn in new money financing for operations and to fulfill the Debtors’ obligations under the Plan.
- The Reorganized Debtors will issue New Common Shares of equity on a ratable basis to eligible unsecured creditors who elect to receive such shares in lieu of cash distributions.
- Immediately prior to the Effective Date, Pace Development and Pace Food shall contribute to Parent, as a capital contribution, fifty percent (50%) of the Pace Obligations, provided that Pace Development and Pace Food may elect, in their sole discretion, to contribute such Pace Obligations in any combination as to any Pace Obligations owed to Pace Development and/or Pace Food.
- The Debtors will establish a cash reserve for payment of administrative and priority claims, with all remaining funds in that reserve made available for distribution ratably to holders of unsecured claims who do not elect to receive shares of the Reorganized Debtors. Pace Development, Pace Food and the Bank will waive their right to receive a portion of such cash on account of their unsecured claims. Because Pace Development, Pace Food and the Bank will not participate in any cash distribution, the Debtors estimate that Holders of General Unsecured Claims who elect to receive cash will receive a distribution of approximately 0% – 20% of the Allowed Amount of such Claims, depending upon the amount of Allowed General Unsecured Claims and the amount available to satisfy such claims after satisfaction of Administrative and Priority Claims.
- Mutual releases will be granted among the Debtors, the Plan Sponsor Parties and those of the Debtors’ unsecured creditors who do affirmatively consent to such mutual releases.”
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement, also see Liquidation Analysis below):
- Class 1 (“Bank Prepetition Secured Claim”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $750k and estimated recovery is uncertain – to be paid over five years. The Bank shall receive the New Loan Distribution, which will be in the form of a $750k senior secured 5-year amortizing loan, plus all accrued interest thereunder, to the Debtors on terms otherwise mutually agreeable between the Debtors and the Bank.
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $127,490 and estimated recovery is 100%.
- Class 3 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $95k – $150k and estimated recovery is 100%.
- Class 4 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $27.0mn – $45.0mn and estimated recovery is 0% – 20%. Holders of shall receive the following treatment:
- (i) Each Holder of a General Unsecured Claim shall be entitled to elect to receive either of the following, provided that any Holder of a General Unsecured Claim that (x) is not an Eligible Holder on the NCS Election Record Date or (y) does not duly comply with the NCS Election Procedures shall receive treatment under paragraph (1) below:
- 1. Such Holder’s Pro Rata Share of the beneficial interest in the Creditor Trust. As beneficiary of the Creditor Trust, Holders shall receive their Pro Rata Share of net Cash derived from the Creditor Trust Assets available for Distribution on each such distribution date as provided under the Plan and Creditor Trust Agreement.
- 2. Subject to the NCS Rights and provided that such has complied with the NCS Election Procedures indicating it is an Eligible Holder on the NCS Election Record Date intending to receive treatment pursuant to this paragraph, such Holder’s Ratable Proportion of New Common Shares.
- (i) Each Holder of a General Unsecured Claim shall be entitled to elect to receive either of the following, provided that any Holder of a General Unsecured Claim that (x) is not an Eligible Holder on the NCS Election Record Date or (y) does not duly comply with the NCS Election Procedures shall receive treatment under paragraph (1) below:
- Class 5 (“Intercompany Claims”) is impaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is N/A and estimated recovery is none.
- Class 6 (“Equity Interests in the Parent”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of interests is N/A and estimated recovery is none.
- Class 7 (“Intercompany Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of interests is N/A and estimated recovery is none.
Voting Results
On November 3, 2020, the claims agent notified the Court of the Plan voting results [Docket No. 404], which were as follows:
- Class 1 (“Bank Prepetition Secured Claim”): 1 claim holder, representing $750,223.94 in amount and 100% in number, accepted the Plan.
- Class 4 (“General Unsecured Claims”): 93 claim holders, representing $313,964,342 (or 96.68%) in amount and 70.99% in number, accepted the Plan. 38 claim holders, representing $10,794,503.27 (or 3.32%) in amount and 29.01% in number, rejected the Plan.
- Excluding ballots of insiders, the voting results for class 4 are as follows: Class 4 (“General Unsecured Claims”): 90 claim holders, representing $48,848,825.51 (or 81.90%) in amount and 70.31% in number, accepted the Plan. 38 claim holders, representing $10,794,503.27 (or 18.10%) in amount and 29.69% in number, rejected the Plan.
Goals of the Chapter 11 Filings
The Baum Declaration [Docket No. 3] stated: "To enable the Debtors to operate effectively and preserve estate value as it works toward its goal of entering into a reorganization transaction for the benefit of its creditors and shareholders…;" the shareholders clearly being Pace and the creditors also prominently featuring Pace, which lent the Debtors $250.0mn "to fund the Debtors’ operations and failed expansion efforts." In some parts of the Baum Declaration, the math does not seem to add up with that Declaration noting $275.0mn of unsecured debt with $250.0mn owed to Pace, $45.0mn owed to Siam Commercial Bank Public Company Limited (“SCB”) and $25.0mn owed to landlords.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Baum Declaration”), Joseph Baum, the Debtors' recently engaged Co-Chief Restructuring Officer detailed the events leading to the Debtors' Chapter 11 filing. The Baum Declaration largely omits detail as to the Debtors' operational issues and frames the Debtors' bankruptcy in terms ill-fated efforts to globalize the Dean & Deluca brand and Pace's ultimate decision to pull the financing plug.
In a July 2019 press release announcing an operational restructuring, however, Sorapoj Techakraisri, Pace’s Chief Executive Officer, does touch on some of the operational issues faced by the Debtors' U.S. operations: “The world’s retail market including North America’s has changed swiftly over the past 4-5 years. Prepared foods have been offered on shelves in many grocery stores and some establishments [are] now providing dine-in options. While online shopping for Americans has increased 30 percent, [requiring] Brick and Mortar stores to adjust their business strategies to fit with the ever-changing consumer behaviors.”
The Baum Declaration states: "Following its acquisition by Pace in 2014, Dean & DeLuca suffered significant operating losses and experienced a liquidity shortfall.
Pace Development Corporation loaned to the Debtors cash exceeding $200 million dollars to finance Dean & DeLuca's opening of dozens of new stores and executing licensing agreements for the expansion, promotion and development of the brand. At its height, Dean & DeLuca operated or licensed retail outlets across much of the globe, as well as an e-commerce platform, with plans to open hundreds of additional outlets. To execute its plans, Dean & DeLuca developed a global supply chain, including an exclusive range of private label and branded retail products.
Dean & DeLuca ceased operations in mid-2019 following a liquidity crisis that impeded execution of its expansion strategy. As of the Petition Date, all of the retail outlets owned by the Debtors and their affiliates have closed and all real estate lease agreements have been terminated.
As early as 2017, the Debtors had actively engaged in efforts to right-size their expenses and reorganize their operations. Despite best efforts, by mid-2019, Dean & DeLuca had run out of cash, and Pace was not able to offer sufficient additional loans to fund continuing losses. At that time, the Debtors shuttered all of their owned retail outlets and ceased direct retail operations."
Key Documents
Exhibits attached to the Disclosure Statement [Docket No. 352]:
- Exhibit A: Plan of Liquidation (filed separately)
- Exhibit B: Liquidation Analysis
- Exhibit C: Feasibility Analysis
- Exhibit D: Intellectual Property
The Debtors filed Plan Supplements at Docket Nos. 250, 360, 423 and 435 which attached the following documents:
Docket No. 250
- Exhibit A: Stockholders Agreement [Updated at Docket No. 360]
- Exhibit B: NCS Election Procedures
- Exhibit C: Amended and Restated Bylaws
- Exhibit D: Amended and Restated Certificate of Incorporation
Docket No. 423
- Exhibit A: Creditor Trust Agreement [Updated at Docket No. 435]
- Exhibit B: Exit Facility Term Sheet
- Exhibit C: Pace Plan Support Agreement
- Exhibit D: Further Revised Stockholders Agreement
- Exhibit E: Redline to Stockholders Agreement [Updated at Docket No. 435]
Liquidation Analysis (see Exhibit B of Disclosure Statement [Docket No. 355] for notes)
About the Prepetition Debtors
[As described at filing] Dean & DeLuca is a multi-channel retailer of premium gourmet and delicatessen food and beverage products under the Dean & DeLuca brand name. It traces its roots to the opening of the first Dean & DeLuca store in the Soho district of Manhattan, New York City by Joel Dean and Giorgio DeLuca in 1977. Debtor Dean & DeLuca, Inc. was incorporated in Delaware in 1999 and is the 100% owner, directly or indirectly, of each other Debtor.
On September 29, 2014, Pace Development Corporation, through its wholly owned subsidiary, Pace Food Retail Co., Ltd. (together, “Pace”), acquired 100% of the shares of Dean & DeLuca, Inc. from its then shareholders.
At filing, the Debtors were owned by an affiliate of Thai property developer Pace Development Corporation ("Pace") which purchased the Debtors for $140.0mn in September 2014.
In mid-2019, however, the Debtors largely shuttered their New York operations with very little comment from Pace. A July 2019 New York Times article (one of many in the NYT covering the painful demise of a New York culinary institution) noted: "Since it was bought by Pace Development in 2014, Dean & DeLuca has developed all the signs of a company with debt problems: It pulled out of lease agreements; promised and revoked sponsorships; closed its stores in North Carolina, Kansas and Maryland; and has consistently withheld payment from vendors, who are increasingly vocal in their outrage. Small vendors in New York City alone said they are owed hundreds of thousands of dollars. Bien Cuit, a bakery in Brooklyn known for its burnished croissants: $56,000. Colson Patisserie, purveyor of French macarons and other sweets: $24,000. Amy’s Bread, which allowed the company to stock its famous layer cakes: $51,000.
'It stings because so many of us bakers grew up alongside Dean & DeLuca,” said Eleni Gianopulos of Eleni’s Cookies, who sued the company last year for $86,000 and ultimately settled for 50 cents on the dollar: an overall loss. Dean & DeLuca carved its niche with artisanal food products like hers, she said, and now the creators are treated as disposable.
'Getting your product into their store was an honor, like a golden ticket, and now it’s a nightmare.”
Prepetition Capital Structure
Read more Bankruptcy News
The post Dean & DeLuca New York, Inc. – Court Confirms Thanksgiving Plan that Carves $300mn of Debt Off of Erstwhile Culinary Star appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.