November 8, 2022 – The Debtors filed a motion seeking a bidding procedures order that would: (i) approve bidding procedures in relation to the sale of substantially all of the Debtors’ assets, (ii) authorize the Debtors to enter into stalking horse arrangements (yet to be selected) and offer bid protections (eg, break-up fee of 3%) and (iii) adopt a proposed auction/sale timetable culminating in an auction on December 7, 2022 and a sale hearing on December 9, 2022 [Docket No. 17].
The Debtors are looking to build on an "extensive prepetition marketing process" that ultimately came up short when a strategic investor backed out of a "cash-for-equity transaction that would have effectively taken the Company private" and left the Debtors "forced to pivot to an expedited filing for chapter 11."
Into an environment where potential acquisition interest appears demonstrably lacking, the Debtors are nonetheless pushing for an expedited timetable (December 9th sale hearing), with their hurry in large part necessitated by the present absence of a viable funding source (again following extensive marketing efforts). The Debtors note as to their predicament (marketing in respect of financing and an asset sale both coming up short):
"As part of the prepetition marketing process, the Debtors and their advisors worked to identify potential sources for debtor in possession financing to extend the timeline to bridge to consummation of a sale transaction. Unfortunately, due to their asset profile and their prepetition secured lenders’ unwillingness to provide incremental liquidity (or to consent to being primed), the Debtors have no present offers for postpetition funding. Against this backdrop, the Debtors and their advisors believe that any no [sic] postpetition financing will be available, if at all, unless and until there are qualifying bids that evidence sufficient value with respect to their current secured lenders, thus obviating the need for an expedited sale process."
Case Status
On November 7, 2022, Fast Radius, Inc. and two affiliated debtors (Nasdaq: FSRD; “Fast Radius” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $50.0mn and $100.0mn (assets and liabilities at $69.3mn and $55.2mn, respectively, as at June 30, 2022). At filing, the Debtors, a "never profitable" cloud manufacturing and digital supply chain company (largely using 3-D printing and injection molding manufacturing processes) cited disappointing net proceeds from a De-SPAC transaction and the failure of out-of-court sale efforts as necessitating the Chapter 11 filings.
Bidding Procedure Motion
The motion [Docket No. 17] states, “The Debtors are seeking approval of the Bidding Procedures to establish an open process for the solicitation, receipt, and evaluation of bids on a timeline that allows the Debtors to consummate a sale of the Assets (the ‘Sale’). The Debtors are seeking approval of the Bidding Procedures to establish an open process for the solicitation, receipt, and evaluation of bids on a timeline that allows the Debtors to consummate a Sale of the Assets in a manner that maximizes value for the estate. As explained…the current marketing process for the Assets began well before the Petition Date, in July 2022.
The Bidding Procedures are designed to generate the highest or otherwise best available recoveries to the Debtors’ stakeholders by encouraging prospective bidders to submit competitive, value-maximizing bids for the Assets.”
Prepetition Marketing Process
The Debtors' motion continues: "In light of growing liquidity challenges, beginning in July of 2022, the Debtors and their advisors commenced an extensive prepetition marketing process to explore all potential strategic alternatives, including sales and capital markets solutions. The Debtors engaged investment bankers Citigroup Global Markets Inc. and Lincoln Partners Advisors LLC ('Lincoln') to assist in exploring all potential strategic alternatives. The Debtors and their investment bankers contacted over 275 potentially interested parties as part of this prepetition process, entered into more than 50 nondisclosure agreements, and held more than 20 management presentations. Potential investors and/or acquirors also had access to a virtual data room with approximately 1,000 documents—which is in addition to the commercial and financial information already publicly available via SEC filings. This process yielded a variety of proposals, including a financing transaction and other licensing arrangements—neither of which proved actionable or sufficient on a standalone basis to adequately capitalize the Debtors.
More specifically, the Debtors were in advanced discussions with one particular strategic investor. On September 29 and 30, 2022, the Debtors and such party engaged in substantial, in-person diligence. On October 7, 2022, the strategic investor submitted an indication of interest to acquire the Debtors. On October 19, 2022, the Debtors entered into an exclusivity agreement with that party in furtherance of a cash-for-equity transaction that would have effectively taken the Company private, delivered a return for existing equity, and left existing creditors unimpaired. However, due, in part, to exogenous factors such as an unsolicited takeover bid of that potential acquiror, the deal could not move forward as contemplated by early November. This development limited the Debtors’ alternatives because of their liquidity profile and truncated window within which to source an acceptable out-of-court transaction to avoid a default under the Prepetition Loan Agreements. Accordingly, the Debtors were left with limited liquidity and forced to pivot to an expedited filing for chapter 11.
The Debtors and their advisors continue to market the Debtors’ business with hopes of identifying a strategic or market participant to serve as a stalking horse bidder (a 'Stalking Horse Bidder') or other bidder in a chapter 11 process. In conjunction with their exploration of strategic alternatives, the Debtors have established and maintained consistent communication with key stakeholders, including their secured lenders. The Debtors have used this dialogue, which has involved substantial diligence, discussion, and interaction among the relevant parties, to keep its creditor constituencies apprised (to the extent practicable) of the status of its marketing process and extend maturity dates to allow for a more comprehensive ability to consummate a valuemaximizing transaction.
Despite consistent efforts to conserve cash, the Debtors and their advisors have moved with urgency as they anticipate substantial liquidity challenges around mid-December, absent material developments.
Although parties continue to express serious interest in the Debtors’ business, in light of the Debtors’ limited available liquidity, and after considering all of their alternatives, the Debtors determined that an in-court sale process would best preserve liquidity and maximize value, and the Debtors anticipate seeking approval of appropriate bidding procedures to continue their prepetition marketing process in court.
As part of the prepetition marketing process, the Debtors and their advisors worked to identify potential sources for debtor in possession financing to extend the timeline to bridge to consummation of a sale transaction. Unfortunately, due to their asset profile and their prepetition secured lenders’ unwillingness to provide incremental liquidity (or to consent to being primed), the Debtors have no present offers for postpetition funding. Against this backdrop, the Debtors and their advisors believe that any no [sic] postpetition financing will be available, if at all, unless and until there are qualifying bids that evidence sufficient value with respect to their current secured lenders, thus obviating the need for an expedited sale process.
Proposed Key Dates
- Deadline to Designate Stalking Horse Bidders: November 23, 2022
- Initial Sale Objection Deadline: November 30, 2022
- Bid Deadline: December 5, 2022
- Auction (if necessary): December 7, 2022
- Deadline to Object to the Plan and the Sale: December 8, 2022
- Confirmation and Sale Hearing: December 9, 2022
- Sale Closing: December 12, 2022
Petition Date Perspective
In a press release announcing the filing, the Debtors state: "The Company has requested that the court establish certain sale and marketing procedures, which include a proposed bid deadline of December 5, 2022. The Company is in active discussions with one or more potential partners and continues to explore and evaluate strategic alternatives.
The Company anticipates that its common stock and warrants will be delisted from the Nasdaq Stock Exchange and will be eligible to be quoted on either the OTC Bulletin Board or Pink Sheets….In light of the bankruptcy filing, the Company will not conduct its Q3 2022 quarterly earnings call."
The Debtors' co-founder and CEO Lou Rassey commented: "Fast Radius has invested over $200 million creating a first-of-its-kind Cloud Manufacturing Platform. Like cloud computing, we provide a platform of software tools and manufacturing solutions to help engineers design and make commercial grade parts for a $360 billion market. We have served over 2,000 manufacturing customers and 23,000 software users since 2020."
Goals of the Chapter 11 Filing
The Debtors provide [Docket No. 14]: “Since July 2022, Fast Radius has undertaken a process to explore and consider viable alternatives and, most recently, has been working diligently to facilitate a smooth transition into chapter 11. Despite having received significant and ongoing interest from multiple parties and as discussed above, the Debtors have no actionable offers that could be consummated on the necessary liquidity timeline without a chapter 11 filing. The Debtors and their advisors are continuing their marketing and outreach efforts and engaging with parties that have expressed interest in the Debtors’ assets to encourage them to participate in the chapter 11 sale process.”
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Whitman Declaration) [Docket No. 15], A&M’s Brian Whittman, adds to the narration above as to the failed out-of-Court sale process: “Fast Radius has faced liquidity challenges and incurred significant operating losses since its inception that frustrate its ability to invest in the growth necessary to attain profitability.
Fast Radius has never been profitable. It has generated recurring losses that have resulted in accumulated deficits of $215.1 million and $123.5 million as of June 30, 2022 and December 31, 2021, respectively. Additionally, Fast Radius anticipated a significant cash influx of approximately $300 to $450 million through the Business Combination in February 2022 [see, "Disappointing De-SPAC," below]. However, due to the significant number of shareholder redemptions, it only raised approximately $73 million on a net basis through the Business Combination (after deducting fees and expenses), which has proven insufficient alone to scale to profitability. Further efforts to raise additional capital since that time have proven unsuccessful to date.”
Goals of the Chapter 11 Filing
The Debtors provide [Docket No. 14]: "Since July 2022, Fast Radius has undertaken a process to explore and consider viable alternatives and, most recently, has been working diligently to facilitate a smooth transition into chapter 11. Despite having received significant and ongoing interest from multiple parties and as discussed above, the Debtors have no actionable offers that could be consummated on the necessary liquidity timeline without a chapter 11 filing. The Debtors and their advisors are continuing their marketing and outreach efforts and engaging with parties that have expressed interest in the Debtors’ assets to encourage them to participate in the chapter 11 sale process."
Disappointing De-SPAC
The Rassey Declaration [Docket No. 14] provides: "Fast Radius, Inc. and the other Debtors went public through a 'de-SPAC' transaction in which we merged with a special purpose acquisition company in February 2022. We anticipated raising between $300 and $445 million in the de-SPAC transaction. However, due to approximately 91% stockholder redemption prior to close, we only raised $106 million of gross proceeds of which only approximately $6 million was sourced from retail investors. The other approximately $100 million of gross proceeds were generated from a combination of insider, affiliate, institutional, and other investors, including through a private investment in public equity ('PIPE') 2 transaction that closed contemporaneously with the de-SPAC transaction. After accounting for transaction and other expenses, the Company was left with approximately $73 million on a net basis. Fast Radius closed the de-SPAC transaction with the express intention of raising additional capital to bridge to profitability, while the amount raised was expected to be sufficient to fund operations through the end of the year."
Pre-Filing Marketing Efforts
The Rassey Declaration [Docket No. 14] provides: "Beginning in July 2022, Fast Radius, with the assistance of its investment banker Citi, launched an extensive marketing process to explore all potential strategic transactions, including sales and capital markets solutions. In August 2022, Fast Radius supplemented those marketing efforts with the engagement of Lincoln International to reach an even more diverse pool of potential partners. For more than 120 days prepetition, between Citi and Lincoln, Fast Radius contacted more than 275 strategic and financial parties, entered into more than 50 nondisclosure agreements, and held more than 20 management presentations….This process yielded a variety of proposals, including a financing transaction and other licensing arrangements—neither of which proved actionable or sufficient on a standalone basis to adequately capitalize the Company.
On October 7, 2022, following several in-person diligence meetings, a strategic buyer submitted an indication of interest to acquire the Company. On October 19, 2022, we entered into an exclusivity agreement with that strategic party in furtherance of a cash-for-equity transaction that would have merged Fast Radius into another public company, delivered a return for existing equity, unimpaired existing creditors, and obviated the need for a bankruptcy filing. ….Notwithstanding such deal momentum, and due, in part, to exogenous factors such as an unsolicited takeover bid of our potential acquiror, on November 2, 2022, the strategic first indicated that it was not likely in a position to move forward with the transaction. On November 6, 2022, the potential purchaser formally withdrew its offer, resulting in the termination of the exclusivity arrangement….Termination of the exclusivity arrangement also gives rise to certain events of default under the Prepetition Loan Agreements. Although we actively explored alternative transactions in the several days following the strategic party’s initial indications on November 2, 2022, those efforts did not yield an actionable transaction in enough time to consummate a deal within our liquidity parameters or avoid triggering an event of default under such credit documents."
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Whitman Declaration) [Docket No. 15], A&M's Brian Whittman, adds to Rassey's narration above as to the failed out-of-Court sale process: “Fast Radius has faced liquidity challenges and incurred significant operating losses since its inception that frustrate its ability to invest in the growth necessary to attain profitability.
Fast Radius has never been profitable. It has generated recurring losses that have resulted in accumulated deficits of $215.1 million and $123.5 million as of June 30, 2022 and December 31, 2021, respectively. Additionally, Fast Radius anticipated a significant cash influx of approximately $300 to $450 million through the Business Combination in February 2022. However, due to the significant number of shareholder redemptions, it only raised approximately $73 million on a net basis through the Business Combination (after deducting fees and expenses), which has proven insufficient alone to scale to profitability. Further efforts to raise additional capital since that time have proven unsuccessful to date."
Prepetition Indebtedness
As of the Petition sate, the Debtors have approximately $23.8mn in total funded debt obligations, consisting of approximately $7.4mn in aggregate principal amount
outstanding under the SVB Facility, and $16.5 million in aggregate principal amount outstanding under the SVB Capital Facility:
Significant Prepetition Shareholders
- United Parcel Service General Services Co. – 18.30%
- Funds affiliated with Drive Capital – 18.23%
- ENNV Holdings, LLC – 13.04%
- Louis Rassey – 10.56%
- Funds affiliated with Energize Ventures – 6.54%
About the Debtors
According to the Debtors: “Fast Radius, Inc. is a cloud manufacturing and digital supply chain company. The Fast Radius Cloud Manufacturing Platform™ provides software applications and manufacturing solutions that help engineers design, make, and fulfill commercial-grade parts, when and where they are needed. This enables companies to manufacture and ship parts easily, flexibly, and sustainably. Founded in 2017, Fast Radius, Inc. is headquartered in Chicago with offices in Atlanta, Louisville, and Singapore, and microfactories in Chicago and at the UPS Worldport facility in Louisville, KY.
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The post Fast Radius, Inc. – Cloud Manufacturer, Facing Uncertainty as to Financing and Possible In-Court Sale Interest, Seeks Approval of Bidding Procedures for Asset Sale; Aims December 9th Sale Hearing appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.