October 21, 2021 – Further to the completion of an asset sale process, the Court hearing the Paper Store cases issued an order approving the Debtors' request for a "structured dismissal" of their Chapter 11 cases [Docket No. 564].
On July 14, 2020, the Paper Store, LLC and one affiliated Debtor (“TPS” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $50.0mn and $100.0mn. At filing, the Debtors, "the largest family-owned and operated specialty gift business in the Northeast," noted that the "optimistic prospects' of 86-store business had been crushed by COVID-19 beginning in March 2020 [although they do also note the impact of a late Thanksgiving (happens once every seven years), too much snow (multiple store-closing snow storms) and a disappointing post-season for the New England Patriots (posting a Titanic loss in a wild card game and apparently sapping New England consumers of the will to spend)].
On September 1, 2020, the Court hearing the Paper Store cases issued an order approving the Debtors’ $22.0mn sale of substantially all their assets to TPS Group Holdings LLC (the “Purchaser”), with the sale also closing on that date. As discussed further below, the Purchaser is a group of investors led by principals of WS Development and includes John Anderson and Thomas Anderson, sons of the Debtors' founder Bob Anderson and the Debtors' VP/Real Estate and Chief Executive Officer, respectively. Documents filed before a late-August auction (which resulted in a $5.0mn price increase as the Purchaser saw off a challenge from credit bidding prepetion lenders), indicate that equity was to be split 85/15 between WS Development and the Anderson family, with the Anderson family (which held a 56.8% stake at filing) entitled to increase their stake by up to 25% if certain targets are met.
The Debtors' website now informs: "In 2020 The Paper Store (formerly known as The Paper Store, LLC) was sold and a new business entity was formed. The company operates now as TPS Group Holdings, LLC utilizing The Paper Store brand name consumers have grown to recognize. The Anderson family proudly remains in the business driving the strategy, sales and daily execution of the business."
Background
The dismissal motion [Docket No. 542] states, “The Debtors sought immediate approval of an expedited sale process in order to sell substantially all of their assets, including their 86 retail stores, their real estate leases, all of their inventory, and any preference or avoidance causes of action. Due to the Debtors’ severe cash crunch, and the need for any potential buyer to have sufficient opportunity to place timely orders for holiday inventory, the Debtors asked this Court to approve a process that would result in a sale closing by September 1, 2020, only 45 days after filing.
The Debtors and their professionals worked quickly to negotiate an asset purchase agreement with a stalking horse bidder, market the Debtors’ assets to other potential purchasers, conduct an auction, and address numerous objections and issues raised by various parties-in interest, all within the 45-day window. On September 1, 2020, at the conclusion of a contested hearing, the Court entered an order approving the proposed sale (the ‘Sale’). The Sale closed that same day (the ‘Closing Date’) and resulted in the realization of $22 million in sale proceeds, the assumption of significant liabilities, and the seamless transition of the Debtors’ business operations to a buyer known as TPS Group Holdings LLC (the ‘Buyer’). The Sale negotiated by the Debtors also included the assumption and assignment to the Buyer of almost all of the Debtors’ real property leases and almost all of the Debtors’ outstanding executory contracts with vendors, including the payment by the Buyer of all applicable cure costs. Although the remaining unpaid, unsecured claims in the case might have recovered virtually nothing after the Sale, the Unsecured Creditors’ Committee negotiated with the Buyer for the payment of a pot of money for the sole benefit of unsecured creditors, in the amount of $500,000 (the ‘Unsecured Creditors’ Fund’). In short, unlike a significant number of other Bankruptcy Court dispositions of large retailers during the COVID-19 pandemic, the transaction in these Chapter 11 Cases was conducted as a going concern sale and preserved more than 2,000 jobs.
After the Sale, the Debtors immediately ceased all business and, at the present time, the Debtors’ assets are comprised of nothing more than three bank accounts which have a combined balance of approximately $1,939,632.71 (including a $118,266 utility deposit and $20,631 in a Professional Fee Escrow account), plus approximately $288,345 in professional fee retainers. The aggregate cash balance of approximately $2,227,977.71 is hereinafter referred to as the ‘Remaining Cash’. Since the Closing Date on September 1, 2020, the Debtors have had no ongoing operations or business, and have not generated any revenue.
Since the Closing Date, the Debtors have worked diligently to wind down their estates and bring these Chapter 11 Cases to a close. Throughout that time, the Debtors have consistently indicated to the Court and others that they intend to conclude these Chapter 11 Cases by moving for a structured dismissal. That time has now come. As of the date of this Dismissal Motion, all aspects of these Chapter 11 Cases have been successfully concluded, and all assets and liabilities have been administered, with the exception of one outstanding motion to reject a single executory contract with a vendor [Docket No. 536] (the ‘Rejection Motion’). No objection to the Rejection Motion has been filed, and the deadline for filing any objections has passed.”
Asset Sale
On September 1, 2020, further to a July 24th bidding procedures order [Docket No. 117] and an auction that concluded on August 27th, the Court hearing the Paper Store cases issued an order approving the Debtors' $22.0mn sale of substantially all its assets to the Purchaser [Docket No. 367]. An amended asset purchase agreement (the “APA”) governing the terms of the sale is attached to the order as Exhibit A.
The Purchaser is a group of investors led by principals of WS Development and includes John Anderson and Thomas Anderson, sons of the Debtors' founder Bob Anderson and the Debtors' VP/Real Estate and Chief Executive Officer, respectively.
The amended APA, attached to the order as Exhibit A, reflects inter alia, (i) a purchase price that increased from $17.5mn to $22.0mn as a result of the auction and (ii) the Purchaser's waiver of "a potential downward adjustment to the purchase price that might have arisen as a result of the 'Inventory Adjustment'…..The auction was held across several days and involved multiple bids from the Purchaser and the only other qualified bidder, credit-bidding Kayne Senior Credit II GP LLC (the “Credit Bidder”), which serves as the Administrative Agent under the Debtors’ prepetition credit facility. In a final round of sealed bids, the Purchaser raised the cash element of the purchase price and made several other adjustments to its offer. As a result, the Debtors selected the "insider" purchaser; a result which the Credit Bidder has endorsed."
A declaration filed in support of the choice of the stalking horse bidder [Docket No. 271, filed before the auction…and price increase…but still providing insight as to the arrangement between WS Develeopment and the Anfersons] provides: "My understanding from my involvement in the negotiations with the Bidder is that
the Insiders will contribute an aggregate amount of $3 million toward the Bid in exchange for a 15% equity interest in the Bidder. The other investors are supplying the remainder of the $17.5 million cash portion of the Bid and will also capitalize the Bidder. I also understand that if the business achieves certain targets and the Insiders remain employed by the Bidder for at least four (4) years, or upon repayment of the non-insiders’ investments, the Insiders can earn an additional
25% in equity. Currently, the Anderson family owns a controlling 56.8% stake of the equity of the Debtors, and a private equity firm owns the remaining 38.5%."
In a press release announcing its acquisition, WS Development added: "In mid-July, The Paper Store pursued a Chapter 11 financial restructuring due to the impact of COVID-19 regulations shuttering their 86 stores, which average between 8,000 and 9,000 s/f, for months. The business successfully emerged from bankruptcy with the aid of a group of strategic investors led by principals of WS Development, the retail-led real estate development firm that owns, manages and leases an extensive portfolio of over 95 properties totaling more than 27 million s/f."
Terms of the Amended APA:
- Seller: The Paper Store, LLC
- Buyer: TPS Group Holdings LLC
- Purchase Price: (i) $22.0mn (the “Base Purchase Price”) plus (ii) Assumed Liabilities (the Debtors estimate these at $21.0mn) and (iii) plus or minus the "Proration Amount."
About WS Development
According to WS Develoipment: "Building by building, project by project, WS has developed 106 properties comprising over 20 million square feet across 11 states, making the company one of the largest retail-led, mixed-use developers in the country. From its origins in suburban New England, our portfolio has grown nationally to include urban core retail, high-end lifestyle centers, and mixed-use developments. We are one of the few in our field to maintain a fully vertically-integrated company, with professionals in design, construction, operations, leasing, lease compliance, entitlements, finance, capital markets, acquisitions, marketing, information management, and accounting."
Petition Date Perspective
Goals of the Chapter 11 Filings
The Van der Wiel Declaration (defined below) states: “the Debtors seek to maintain their business operations without interruption and establish administrative procedures to facilitate a smooth transition into chapter 11, in each instance for the purpose of maintaining and maximizing the value of the Debtors and their estates as a going concern in contemplation of a sale of the Debtors’ assets.”
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Van der Wiel Declaration”), Don Van der Wiel, the Debtors’ Chief Restructuring Officer, detailed the events leading to TPS’s Chapter 11 filing. The Debtors make it clear that this is plainly about COVID-19, but a few other adverse events sneak into the mix, namely a late Thanksgiving (happens once every seven years), too much snow (multiple store-closing snow storms) and a disappointing post-season for the New England Patriots (posting a Titanic loss in a wild card game and apparently sapping New England consumers of the will to spend).
On COVID-19, the Van der Wiel Declaration provides: “In March of 2020, despite the optimistic prospects for the future of the Debtors, the sudden economic impact of the global COVID-19 pandemic derailed the Debtors’ plans. Like just about every retail business in the United States, the Debtors have been operating under the considerable financial strain caused by the pandemic, which has had a severe impact on revenues. Even though stores have been allowed to recently reopen in most jurisdictions, the disruption and additional cost of trying to preserve the health and safety of nearly 2000 full and part time employees has only made matters worse. The temporary closure of all of the Debtors’ 86 retail stores and the disruption to the Debtors’ customer base and, to a certain extent, its supply chain have also exacerbated the Debtors’ issues related to substantial funded debt obligations and significant lease obligations.
In short, the filing of these Chapter 11 Cases has been caused by the COVID-19 crisis.”
Prepetition Indebtedness
As of the Petition date, the Debtors’ prepetition capital structure includes approximately $45.0mn in funded debt, of which $40.0mn of such debt is held by third party institutional lenders and $5.0mn of which is held by insiders of the Debtors. The Debtors’ funded debt obligations are summarized below:
|
Debt Class |
Lender |
Principal Outstanding as of Petition Date |
|
Revolving Line of Credit |
City National Bank, as agent |
$17,000,000 |
|
Term Loan |
Kayne Anderson, as agent |
$22,975,000 |
|
Junior Capital Loan |
Founder Investerco |
$2,980,000 |
|
Junior Capital Loan |
Westview Capital Partners III |
$1,655,738 |
|
Junior Capital Loan |
Harbourvest/Nystrs Co-Invest Fund II |
$331,148 |
|
Junior Capital Loan |
Beth Angelo |
$33,115 |
About the Debtors
According to the Debtors: "It all started with a small newspaper stand in Maynard, MA in 1964 – established by our founder, Bob Anderson. Over the years The Paper Store has responded to what our local communities need and continues to evolve with our customers’ shopping habits – while at the same time, staying true to our brand. Hence, why we remain named 'The Paper Store.'
The Paper Store is the largest family-owned and operated specialty gift business in the Northeast. Today, the Anderson family runs over 80 stores throughout the Northeast – and a thriving ecommerce business — with over 3,000 employees who make The Paper Store 'tick.' Our team works diligently to offer guests a unique shopping experience where they can find a unique gift for any occasion."
The Van der Wiel Declaration adds: "At its inception more than 55 years ago, the original vision of The Paper Store was to serve as a local retailer offering newspapers, magazines, greeting cards and school supplies. Since then, The Paper Store has expanded beyond its original vision and has grown organically from a “mom-and-pop” shop to a regionally renowned specialty retailer. Today, The Paper Store has grown into one of the leading specialty gift chains in the Northeast with 86 locations in 7 states."
Corporate Structure Chart
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The post The Paper Store, LLC – Further to Going Concern Sale to Group Led by WS Development and Including Members of the Anderson Family, Court Grants Debtors Request for Dismissal of Chapter 11 Cas appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.