June 22, 2022 – The Debtors requested Court authority to (i) access $1.5mn in debtor-in-possession (“DIP”) financing ($500k interim) from prepetition lenders 37 Baking Holdings, LLC (recently formed to acquire the debt) and (ii) use cash collateral [Docket No. 15]. The DIP Term Sheet is attached as Exhibit B to the motion.
On June 22, 2022, Gold Standard Baking LLC and two affiliated debtors (“GSB” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn ($140.0mn of funded debt).
At filing, the Debtors, “one of the largest industrial bakers in the United States” noted their intention to pursue an asset sale to 37 Baking Holdings, LLC, an entity formed to acquire the "First Lien Obligations" (see debt table below) by several investment funds and minority-owned by several current GSB employees. On April 26th, 37 Baking Holdings, LLC acquired all the rights/debt of the Debtors' prepetition senior lenders (the "Initial Lenders").
37 Baking Holdings, LLC has entered into a stalking horse agreement with the Debtors further to which it has agreed to purchase the Debtors' assets for an aggregate purchase price consisting of: (i) a credit bid in the amount of a portion of the First Lien Obligations in the amount of $20.0mn and (ii) assumption of certain assumed liabilities (including the DIP financing obligations).
The DIP Motion
The DIP motion [Docket No. 15] explains, “The Debtors commenced these Chapter 11 Cases to maximize the value of their estates for the benefit of all parties in interest through a going-concern sale process. As further described in the First Day Declaration, prior to the Petition Date, the Debtors explored a range of options to address their ongoing challenges related to maintaining sufficient cash flow to satisfy their debt and operational obligations. Ultimately, due to cash flow and other concerns, the Debtors, together with their advisors, expended significant efforts marketing the Debtors’ assets in the months leading up to the Petition Date. This marketing process included significant mailings and calls to targeted, industry specific, potential buyers that the Debtors and their advisors believed might be interested in discussing a potential purchase of the assets.
The culmination of the Debtors’ marketing process was the Debtors’ agreement to enter into an asset purchase agreement with the Prepetition Secured Party and the DIP Facility Lender for the sale of substantially all the Debtors’ assets, subject to a public bidding and auction process with the Prepetition Secured Party and the DIP Facility Lender as the stalking horse (all as subject to the Bankruptcy Court’s approval).”
Marketing
Unsurprisingly, the stalking horse/[recently minted] prepetition lender/DIP lender has staked out its position well, leaving it (subject to a pro forma kicking of the fiduciary tires by independent board members as advised by investment banker Houlihan Lokey) as the only "viable, actionable source of debtor-in-possession financing available under the circumstances, particularly given the nature of the Stalking Horse Bid."
A declaration in support of the proposed financing filed by Houlihan Lokey [Docket No. 15] adds: "Given the Debtors’ capital structure and under the current circumstances, the only viable, actionable source of debtor-in-possession financing was with the Prepetition Secured Party and DIP Facility Lender. Based upon my experience, any potential lenders, if any were to make a financing proposal at all, would require priming of the existing secured parties. Furthermore, the Prepetition Secured Party and DIP Facility Lender made it known that it would not consent to a priming loan from a third-party. In my experience, any such attempt, even if actionable by the Debtors, would likely result in expensive and distracting litigation at the outset of these chapter 11 cases that the Debtors do not have the requisite financing to support.
Further, with any third-party proposal, the Debtors would incur the execution risk associated with a new lender transaction, including timing and due diligence constraints, necessarily involving the payment of additional professional fees. In contrast, the proposed consensual DIP Facility and access to Cash Collateral offered by the Prepetition Secured Party and DIP Facility Lender allows the Debtors to avoid such risks at the outset of these chapter 11 cases.
Based on the foregoing, the Debtors believe, and I agree, that the DIP Facility and consensual use of Cash Collateral represents the best (and likely only) financing option available under the circumstances, particularly given the nature of the Stalking Horse Bid. It is also my belief that the economic terms of the DIP Facility are customary for debtor-in-possession financings of this type and were the product of arm’s-length negotiations with the Prepetition Secured Party and DIP Facility Lender."
Key Terms of DIP Financing:
- Borrower: Gold Standard Holdings, Inc., Gold Standard Baking, LLC, and Gold Standard Real Estate, LLC
- DIP Lender: 37 Baking Holdings, LLC
- Term: The maturity date (“Maturity Date”) shall be the earliest to occur of: (i) August 15, 2022; (ii) the closing date following entry of one or more final orders approving the sale of all or substantially all of the assets belonging to the Debtors in the Chapter 11 Cases, (iii) the acceleration of any outstanding DIP Loans following the occurrence of an uncured Event of Default (as defined herein), or (iv) entry of an order by the Bankruptcy Court in the Chapter 11 Cases either (a) dismissing such case or converting such Chapter 11 Case to a case under Chapter 7 of the Bankruptcy Code, or (b) appointing a Chapter 11 trustee or an examiner with enlarged powers relating to the operation of the business of the Debtors (i.e., powers beyond those set forth in the Bankruptcy Code), in each case without the consent of the DIP Facility Lender. All amounts outstanding under the DIP Facility shall be due and payable in full, and the DIP Commitments thereunder shall terminate, on the Maturity Date.
- Commitment: The DIP Facility Lender shall provide a secured, multiple draw term loan credit facility of up to $1,500,000.00 to fund Post-Petition Funding Obligations, on the terms and subject to the conditions set forth in the DIP Term Sheet and Interim Order, provided that $500.000.00 shall be available upon entry of the Interim Order and an additional $1,000,000.00 shall be available upon entry of the Final Order.
- Interest Rate: Interest shall accrue on the Principal Balance based on the portion of the Principal Balance the Debtors have actually drawn, at a per annum fixed rate of 8.00%; provided that, after the occurrence and during the continuance of an Event of Default, interest shall accrue at the fixed rate of 12.00%.
- New Money: $1.5mn
- Roll-Up: N/A
- Use of Proceeds: The Debtors will be permitted to use the proceeds of the DIP Facility to fund the operational, employee, and other costs of the Debtors, and payments related to the working capital and other general corporate purposes of the Debtors, as well as to pursue the orderly sale of their assets through these Chapter 11 Cases, including the payment of professional fees and expenses, and, in each case, consistent with, subject to, and within the categories and limitations contained in, the Budget (as defined herein) (the “Permitted Uses”) and all applicable orders of the Bankruptcy Court in the Chapter 11 Cases.
- Milestones: The Debtors shall comply with the following milestones for a sale of substantially all of the Debtors’ assets (a “Bankruptcy Sale”) in the Chapter 11 Cases (the “Sale Milestones”):
- Deadline to obtain the bidding procedures order and the terms of an auction, on terms and in a form acceptable to DIP Facility Lender; no later than sixteen (16) days after the Petition date
- Deadline for an auction, no later than July 28, 2022
- Deadline to obtain order approving the sale to the stalking horse bidder or winner of the auction, no later than August 3, 2022
- Deadline to consummate the Sale; no later than August 15, 2022
Prepetition Indebtedness
As of the Petition Date, the Debtors’ capital structure consists of outstanding funded debt obligations in the aggregate principal amount of approximately $140.0mn, including the Revolving Credit Facility, the First Lien Term Loan, the Second Lien Term Loan, and the Senior Subordinated Notes.
Budget [see Docket No. 15 for better image resolution]
About the Debtors
According to the Debtors: “Gold Standard Baking is one of the largest industrial bakers in the United States. We deliver delicious products from laminated dough to a wide variety of finished foods. We’re strategically located in the center of the country with our main bakery in Chicago. GSB produces over 150 varieties of fully-baked croissants, danish and cinnamon rolls, feeding millions of people each week across the US and in Canada. All our finished foods are designed for the thaw and sell programs of our customer-partners in food service, retail, casual dining, health, education, and quick serve restaurants."
The Young Declaration adds: "The Debtors produce over 1.7 million pounds of fully-baked goods per week on average, including approximately 100 varieties of fully-baked croissants, Danishes, and cinnamon rolls. These goods are delivered to approximately 100 retail and other foodservice customers per week through a network of distributors. The Debtors offer fully-finished “thaw and serve” foods designed for ease of use to customers across a wide range of industries, including partners in food service, retail, casual dining, health, education, and quick service restaurants.
As of the Petition Date, the Debtors employ approximately 333 full-time employees. The Debtors also periodically retain temporary workers through various staffing
agencies to fulfill certain duties on a short- and long-term basis. Typically, at any given time the Debtors retain approximately 50 temporary staff."
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