CEC Entertainment, Inc. (Chuck E. Cheese’s) – Notifies Court of December 30th Effectiveness Date for Second Amended Plan; Restaurant Operator Emerges Minus $705.0mn of Debt Obligations and Owned by First-Lien Creditors

December 30, 2020 – The Debtors notified the Court that their Second Amended Plan had become effective as of December 30, 2020 [Docket No. 1528]. The Court had previously confirmed the Debtors’ Plan on December 15, 2020 [Docket No. 1495].

On June 24, 2020, CEC Entertainment, Inc. and 15 affiliated Debtors (“CEC” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-33163. At filing, the Debtors, who operate the Chuck E. Cheese (612 restaurants) and Peter Piper Pizza (122) restaurant chains, noted estimated assets of $1,743,518,039; and estimated liabilities of $1,998,548,744. In an amended Schedule A/B, the Debtors noted $682.1mn of assets and $1.1bn of liabilities [Docket No. 567].

As at filing, the Debtors were 98% owned by an affiliate of Apollo Global Management, LLC. In July 2019, the Debtors abruptly called off a planned business combination agreement with blank check company Leo Holdings, Corp (Lion Capital affiliate) which was to be followed by an IPO which had valued the Debtors' equity at $1.4bn.

In a press release announcing the emergence, the Debtors stated: “CEC emerges with a significantly strengthened financial position, approximately $705 million of debt obligations eliminated from its balance sheet and the full support of its new Board of Directors and ownership…As a result of the contributions and support of key constituents, the Company's balance sheet has been strengthened by the reduction of approximately $705 million of debt obligations and at emergence the Company has over $100 million of liquidity to support operations and growth initiatives."

The Debtors further noted in the press release, "CEC has emerged with a new Board of Directors that will consist of seven members, including:

• David McKillips, CEC's Chief Executive Officer;
• Joshua Acheatel, Senior Investment Professional at Monarch Alternative Capital LP;
• Howard Altman, Chief Investment Officer of Metropoulos & Co.;
• Patrick J. Bartels Jr., Managing Member of Redan Advisors;
• Clifford Hudson, previously Chairman of the Board and CEO of Sonic Corp.;
• Lance Milken, Founder of Ripple Industries LLC and formerly a Senior Partner at Apollo Global Management, Inc.; and
• An additional director appointed in accordance with the limited liability company agreement of CEC Holdings."

A deadlines of January 29, 2021 has been set for administrative claims.

Plan Overview

The Debtors memorandum of law in support of Plan confirmation provided the following late-hour summation: "As a result of the contributions and support of the Debtors’ key constituents, the Plan will strengthen the Debtors’ balance sheet by reducing their funded debt obligations by approximately $489 million and increasing their cash flow on a go-forward basis. Additionally, the Restructuring Transactions will provide the Reorganized Debtors with access to a new $200 million first lien first out term loan facility to fund ongoing working capital and other general corporate purposes. Moreover, pursuant to the Plan, the Debtors will establish and fund a trust to administer, process, settle, resolve, liquidate, satisfy, and pay General Unsecured Claims (the ‘GUC Trust’) and will issue the New Warrants to holders of Senior Unsecured Notes Claims. The establishment and funding of the GUC Trust and the issuance of the New Warrants will provide unsecured creditors with distributions that they, absent the agreement of the Initial Consenting Creditors, would not otherwise be entitled to receive.

The Amended Disclosure Statement [Docket No. 1215] adds, “The Plan is the result of extensive good faith negotiations, overseen by the Debtors’ Restructuring Committee, among the Debtors and a number of their key economic stakeholders, that have agreed to support the Plan pursuant to that certain Plan Support Agreement dated as of September 4, 2020 (the ‘Original PSA’), as amended and restated on September 25, 2020 (the ‘Amended and Restated PSA’), and further amended and restated on October 21, 2020 (as further amended and restated, the ‘Second Amended and Restated PSA’). With the addition of the Initial Additional Consenting Creditors and Noteholder Additional Consenting Creditors…the Second Amended and Restated PSA now includes holders of in excess of 92% of the obligations outstanding under the First Lien Credit Agreement and holders of in excess of 80% of the obligations outstanding under the Senior Unsecured Notes Indenture.

The Plan provides for a comprehensive restructuring of the Company’s balance sheet and a significant investment of capital in the Debtors’ business. Specifically, the proposed restructuring contemplates, among other things:

• A debt-for-equity exchange transaction (or similar transaction)
• The following treatment of Claims and Equity Interests:

1. A holder of an Allowed First Lien Debt Claim will receive on the Effective Date, in full and final satisfaction of such Allowed First Lien Debt Claim, its Pro Rata Share of: (i) 100% of the New Equity Interests, subject to the dilution described herein, and and (ii) the Second-Out Term Loan Facility.
2. Each holder of an Allowed Senior Unsecured Notes Claim will receive, in full and final satisfaction of such Senior Unsecured Notes Claim, its Pro Rata Share of New Warrants, subject to dilution by the MIP Equity.
3. Each holder of an Allowed General Unsecured Claim will receive a GUC Trust Interest which shall entitle each holder of an Allowed General Unsecured Claim to receive, in full and final satisfaction of such Allowed General Unsecured Claim, its Pro Rata Share GUC Trust Assets after the GUC Trust Expenses have been paid in full or otherwise reserved for
4. Each holder of Existing Queso Interests will receive no recovery.

• A $200 million first lien first out term loan facility (the ‘Exit Facility’), which will be backstopped by the Initial Consenting Creditors, and which is subject to increase as necessary to repay claims under the DIP Facility and fund the liquidity requirements of the Reorganized Debtors.”

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 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 3 (“First Lien Debt Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is 31.1% – 52.8%. Each Holder shall receive its Pro Rata Share of (a) 100% of the New Equity Interests, subject to dilution by the (w) New Warrant Equity (if any), (x) Exit Facility Equity, (y) Exit Facility Put Option Premium, and (z) MIP Equity, and (b) the New Second-Out Term Loan.
• Class 4 (“Senior Unsecured Notes Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is 1.5% – 10.6%. Each Holder shall receive its Pro Rata Share of the New Warrants, subject to dilution by the MIP Equity.
• Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is 12.2% – 19.4%. Each holder shall receive a GUC Trust Interest, which shall entitle each holder of an Allowed General Unsecured Claim to receive, in full and final satisfaction of such Allowed General Unsecured Claim, its Pro Rata Share of the GUC Trust Assets (i.e., $5.5mn) after the GUC Trust Expenses have been paid in full or otherwise reserved for.

FN: As of the Bar Date, approximately $141.0mn of General Unsecured Claims (excluding over $222.0mn of Senior Unsecured Notes Claims) have been filed and scheduled against the Debtors’ estates. The projected recoveries for Holders of Class 5 General Unsecured Claims are the Debtors’ preliminary estimates as of the date hereof and are subject to material change, including as the result of additional rejection damages claims that may be asserted against the Debtors’ estates. Neither the Creditors’ Committee nor the GUC Trustee has independently verified the Debtors’ assumptions and makes no representation or warranty with respect to the proposed recoveries set forth herein. Actual recoveries may materially differ (either higher or lower) from this estimated range based on, among other thing: (i) the Debtors’ final determinations whether to assume or reject executory contracts and unexpired leases (which have not been finalized as of the date hereof); (ii) the reduction of Allowed amounts of claims based on claims objections and the claims reconciliation process; (iii) the amount of GUC Trustee expenses; (iv) the potential allowance of contingent and/or unliquidated litigation and other claims; (v) the potential coverage of certain claims by insurance or other third-party sources; (vi) the potential allowance of late-filed claims (including any claims that may not have been filed as of the date hereof); and (vii) the potential impact of U.S. Trustee fees on the GUC Trust. Analysis of asserted claims and discussions with holders of claims remain ongoing.

• Class 6 (“Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 7 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
• Class 8 (“Existing Queso interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
• Class 9 (“Intercompany Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is N/A.

Voting Results

On December 11, 2020, the Debtors' claims agent notified the Court of the Plan voting results [Docket No.1471] which were as follows:

• Class 3 (“First Lien Debt Claims”): 151 claim holders, representing $736,345,898.70 in amount and 100% in number, accepted the Plan.
• Class 4 (“Senior Unsecured Notes Claims”): 79 claim holders, representing $176,266,745.00 (or 99.91%) in amount and 89.77% in number, accepted the Plan. 9 claim holders, representing $165,000.00 (or 0.09%) in amount and 10.23% in number, rejected the Plan.
• Class 5 (“General Unsecured Claims”): 156 claim holders, representing $7,533,809.07 (or 75.42%) in amount and 86.19% in number, accepted the Plan. 25 claim holders, representing $2,455,395.54 (or 24.58%) in amount and 13.81% in number, rejected the Plan.

DIP Financing

On October 13, 2020, the Court hearing the Debtors' cases issued an order authorizing the Debtors’ to (i) access $200.0mn of debtor-in-possession (“DIP”) financing and (ii) use cash collateral [Docket No. 1118]. $100.0mn of the DIP financing, being provided by prepetition lenders, was made available immediately by that DIP Order (the “Closing Date”); with remaining amounts made available as delayed draw term loans as needed (in up to four draws after the Closing Date, with each such draw not exceeding $50.0mn). The DIP Facility also requires, among other things, a 5% Put Option Premium and annual interest of LIBOR plus 1000 basis points (subject to a LIBOR floor of 100 basis points).

Key Documents

The Debtors' Second Amended Disclosure Statement [Docket No. 1215] attached the following documents:

• Exhibit A: Plan
• Exhibit B: Amended and Restated PSA
• Exhibit C: Creditors’ Committee’s Letter
• Exhibit D: Valuation Analysis
• Exhibit E: Organizational Chart
• Exhibit F: Exit Facility Commitment Letter
• Exhibit G: Purchase Transaction
• Exhibit H: Liquidation Analysis
• Exhibit I: Financial Projections
• Exhibit J: Release Provisions

The Debtors filed Plan Supplements at Docket No. 1337, 1459 and 1486 which attached the following documents:

• Exhibit A: Purchase Transaction Election [Docket No. 1337]
• Exhibit B: Term Sheet for Operating Agreement of CEC Holdings [Docket No. 1337] 
• Exhibit C: New Board Disclosures [Docket No. 1459]
• Exhibit D: Exit Credit Agreement [Docket No. 1459]
• Exhibit E: New Second-Out Credit Agreement [Docket No. 1337]
• Exhibit F: New Warrant Agreement [Docket No. 1337]
• Exhibit G: Schedule of Retained Causes of Action [Docket No. 1337]
• Exhibit H: Schedule of Rejected Contracts [Docket No. 1486]
• Exhibit I: GUC Trust Agreement [Docket No. 1337]

Liquidation Analysis (see Exhibit F of Disclosure Statement [Docket No. 1215] for notes)

About the Debtors

According to the Debtors: "CEC Entertainment, Inc. is a nationally recognized leader in family dining and entertainment with both its Chuck E. Cheese and Peter Piper Pizza restaurants. As the place where over half a million happy birthdays are celebrated every year, Chuck E. Cheese's goal is to create positive, lifelong memories for families through fun, food, and play and is the place Where A Kid Can Be A Kid®. Committed to providing a fun, safe environment, Chuck E. Cheese helps protect families through industry-leading programs such as Kid Check®. As a strong advocate for its local communities, Chuck E. Cheese has donated more than $16 million to schools through its fundraising programs and supports its national charity partner, Boys and Girls Clubs of America. Peter Piper Pizza features dining, entertainment and carryout with a neighborhood pizzeria feel and "pizza made fresh, families made happy" culture. Peter Piper Pizza takes pride in delivering quality food and fun that reconnects family and friends. With a bold design and contemporary layout, an open kitchen revealing much of their handcrafted food preparation, the latest technology and games, and beer and wine for adults, Peter Piper Pizza restaurants appeal to parents and kids alike. As of March 29, 2020, the Company and its franchisees operated a system of 612 Chuck E. Cheese and 122 Peter Piper Pizza venues, with locations in 47 states and 16 foreign countries and territories."

Corporate Structure Chart

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