January 11, 2023 – Independent Pet Partners Holdings, LLC and 12 affiliate debtors (“IPP“ or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 23-10153 (Judge TBA). The Debtors, Woodbury, Minnesota-based operators of 159 premium pet food storesstores across 12 states and the District of Columbia*, are represented by Andrew L. Magaziner of Young Conaway Stargatt & Taylor, LLP. Further board-authorized engagements include: (i) McDonald Hopkins LLC as general bankruptcy counsel, (ii) Berkeley Research Group, LLC as financial advisors (and supplying co-CROs Stephen Coulombe and Charlie Reeves, (iii) Houlihan Lokey Capital, Inc. (“Houlihan Lokey”) as investment bankers, (iv) B. Riley Retail Solutions, LLC (“B. Riley”) to assist in conducting store closure sales and (iv) Omni Agents as claims agent.
*IPP was formed in 2017 by private equity house TPG (who understandably decline to list the Debtors amongst "selected" portfolio companies) and, pursuing a strategy of consolidating independent pet retailers to create a premium segment within their sector, grew into a chain of more than 160 locations operating under several retail banners including Chuck and Don’s, Kriser’s Natural Pet, Loyal Companion, and Natural Pawz.
The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $100.0mn and $500.0mn (see just below for further detail); and estimated liabilities between $100.0mn and $500.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) ADMC ($4.1mn trade claim), (ii) Pet Food Experts ($3.1mn trade claim) and (iii) Supreme Pet Supplies ($675k trade claim).
For the calendar year ended December 31, 2022, the Debtors generated, on a consolidated basis, approximately $220.0mn in net sales. As of the Petition date, the Debtors, on a consolidated book-value basis, had total assets of approximately $182.0mn and total liabilities of approximately $215.0mn.
Filing Date Highlights
- National Chain (159-Locations) of Premium Pet Food Stores Controlled by Private Equity House TPG Files for Bankruptcy with Liabilities of $219.0mn
- Cites Aggressive Growth Strategy, COVID, Unexplained Rise in Canine Heart Failure (Linked to Grain Free, High Protein Foods, the Debtors' Specialty) and Inflation (Hitting Premium Pet Foods Disproportionately)
- After Failed Out-of-Court Sales Effort, Will Pursue In-Court Sale of Chuck and Don’s and Kriser’s Natural Pet Lines (66 Stores) and Liquidate Balance
- Prepetition Lenders to to Supply $9.6mn of New Money DIP Financing and Serve as Credit Bidding ($60.0mn) Stalking Horse in with Section 363 Auction/Sale Process to Close by April 14th
Debtors Q&As
In a set of Q&A's relating to the filing, the Debtors advised that: “These chapter 11 cases were necessitated by a confluence of factors, including: (a) challenges related to our early growth strategies, (b) unexpected changes in consumer behavior resulting from a potentially fatal heart disease in dogs, (c) the effects of the COVID-19 pandemic on the retail industry, (d) recent inflation trends, (e) maturing credit facilities, and (f) a prepetition sale process that could not identify an executable, going-concern transaction.
After discussions with our lenders, we have decided to sell 66 stores operating under the Chuck and Don’s and Kriser’s Natural Pet lines as part of the bankruptcy sale process. As for the remaining stores, we are seeking to finish the liquidation process we commenced prior to filing these chapter 11 cases by the end of February 2023….The Company has determined, in consultation with our advisors and management, that we will reduce our store footprint to 66 stores in our core markets of Colorado, Kansas, Minnesota, Wisconsin, and Illinois, and going-forward, we will operate only under the Chuck & Don’s and Kriser’s banners."
Goals of the Chapter 11 Filings
The Coulombe Declaration (defined below) provides that the Debtors intend to use Chapter 11: "to facilitate a going concern sale transaction and the orderly liquidation of their underperforming stores. Ultimately, the Debtors intend to pursue a value-maximizing chapter 11 liquidating plan through which the sale proceeds and other available proceeds will be distributed in accordance with the Bankruptcy Code."
DIP Financing
The Debtors' Prepetition Lender Group has agreed to fund a $27.3mn debtor-in-possession ("DIP") credit facility, which includes @$9.6mn of new money term loans and a roll- up of the substantially all of the obligations (@$17.7mn) under the Debtors' prepetion ABL Loan (see "Prepetition Indebtedness" below).
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Coulombe Declaration”) [Docket No.], Stephen Coulombe, the Debtor’s Chief Restructuring Officer provides: “These Chapter 11 Cases were necessitated by the culmination of challenges related to the Debtors’ early growth strategies, followed by unexpected changes in consumer behavior resulting from published studies into a sudden and unexplained rise in diagnoses of dilated cardiomyopathy ('DCM'), a potentially fatal heart disease in dogs.
Before the Debtors could recover from the effects of DCM on the Company, the COVID- 19 pandemic caused mass shutdowns and abrupt changes in the retail industry. Despite a financial restructuring in 2020, these factors—together with recent inflation trends, maturing Secured Credit Facilities…and a prepetition sale process that did not generate an executable, going-concern transaction for the Debtors—all ultimately culminated in the Debtors’ chapter 11 filing and the Debtors’ determination, in an exercise of their business judgment, to pursue a postpetition sale of their profitable business lines."
Drilling down, the Coulombe Declaration adds:
"The Debtors’ Initial Acquisition Strategy. IPP was founded in 2017. The Company’s initial business model involved acquiring regional, market-leading pet stores and consolidating them into a single platform. Operating under multiple banners, the regional store consolidation allowed the Debtors to utilize the latest in services technology and e-commerce capabilities, while improving customer relationship management. The Company’s stores generally tailor to the higher end of the market, and provide an inviting, personal, and neighborly environment—very different from a 'big box' pet store.
From its inception through early 2019, IPP acquired several regional independent pet store banners, including Chuck & Don’s, Kriser’s Natural Pet, and Natural Pawz. Then in May 2019, the Debtors launched the Loyal Companion banner, and the Company brought several recently-acquired banners in the mid-Atlantic and Northeast under the Loyal Companion banner. At the same time, the Debtors introduced a private label brand, which required increased research and development spending. Notwithstanding the inherent onboarding challenges faced by the Debtors in their first few years, the Debtors maintained their goal of opening 500 stores in five years.
DCM. As of mid-2019, the Debtors’ stores stocked predominantly grain-free, high protein dog food. In June 2019, as the Debtors continued to integrate and onboard new acquisitions, news outlets and social media platforms began publicizing an ongoing FDA investigation into DCM. Specifically, the FDA had received reports from consumers that led the agency to investigate whether certain kinds of dog food correlated with DCM. These consumer reports largely related to dogs on a grain-free diet—the very type of dog food that the Debtors primarily stocked and that their customers preferred.
COVID-19. Just as sales began to rebound after the DCM report, the COVID-19 pandemic emerged and brought the world to a halt, as a result of quarantines, social distancing protocols, and other mandates. These sudden and unexpected changes forced the Debtors to temporarily close stores across every region. These steps severely impacted the Debtors’ business because, at the time, the Debtors’ revenue was highly dependent on in-store retail and services sales. From 2019 to 2020, net sales fell by an additional $10 million. DCM and COVID-19 together caused in-store sales to fall by nearly $20 million from 2019-2020.
Inflation. Recent inflation, hitting a 40-year high in June 2022, severely impacted the Company’s operating margins. The elevated costs of raw materials, inventory, and other services increased pressure on the Company without a meaningful ability to pass those costs to customers. In addition, inflation has caused the Debtors’ customers to focus their purchases on lower margin essentials like pet food, while forgoing higher margin items."
Prepetition Indebtedness
As of the Petition date, the Debtors’ prepetition capital structure includes secured funded debt with an aggregate outstanding balance (including principal and interest) of approximately $111.4mn, on account of three credit facilities: (a) the ABL Facility ($17.7mn outsanding); (b) the DDTL Facility ($84.5mn); and (c) the Priming Facility ($9.2mn) (each as defined below, and collectively, the “Secured Credit Facilities”). The Debtors entered into the ABL Facility and the DDTL Facility to adequately capitalize the Company at or near its inception. In late 2022, the Debtors entered into the Priming Facility, pursuant to which the Prepetition Lender Group (as defined below) provided “bridge” liquidity to keep the Debtors’ operations afloat prior to commencing these Chapter 11 Cases.
Main Street Capital Corporation (“Main Street”), Newstone Capital Partners (“Newstone”), and CION Investment Corporation (“CION,” and collectively with Main Street and Newstone, the “Prepetition Lender Group”), or funds managed or controlled by these entities, are lenders under the Secured Credit Facilities. The Secured Credit Facilities are secured by liens on substantially all of the Debtors’ assets as more fully described below.
Prepetition Marketing Efforts
The Coulombe Declaration provides: "On or about August 27, 2022, the Debtors retained McDonald Hopkins LLC ('McDonald Hopkins') to provide corporate and restructuring legal advice, and, on or about September 9, 2022, the Debtors retained Houlihan Lokey to provide financial advisory and investment banking services in connection with evaluating and executing strategic and restructuring transactions….The process culminated in a marketing process undertaken by Houlihan Lokey in the third and fourth quarters of 2022 to identify strategic and financial buyers. More specifically, Houlihan Lokey contacted and sent material to over 100 potential acquirers (collectively, the 'Interested Parties'). Sixty-five Interested Parties executed non-disclosure agreements and gained access to the Debtors’ electronic data room....As of December 15, 2022, the Debtors had not received any executable offers to purchase their business as going concern, significantly dimming the Debtors’ prospects for identifying an out-of-court solution. Thereafter, on or about December 28, 2022, after a series of interviews of reputable turnaround consultants, the Debtors retained BRG…"
About the Debtors
The Coulombe Declaration provides: "As of the Petition Date, the Debtors, headquartered in Woodbury, Minnesota, operated 159 pet stores across 12 states and the District of Columbia, under four unique banners— Chuck and Don’s, Kriser’s Natural Pet, Loyal Companion, and Natural Pawz. In addition to high- quality pet food and other pet toys and accessories, the Debtors offer a wide range of pet services including grooming, self-wash, pet parent education, and veterinary services, all in the same store for a one-stop pet experience.
IPP was formed in 2017 to meet the burgeoning demand for pet services and based on the belief that pet parents want an easier way to support the holistic wellness of their pets. By consolidating independent pet retailers, IPP grew into a coast-to-coast chain of more than 160 locations operating under several retail banners. The Debtors do not own any real property. The Debtors lease their stores from more than 100 different landlords nationwide. Today, IPP’s locations offer a one-stop pet experience with healthy, high-quality food products and treats and a range of pet services, including grooming, self-wash, pet parent education, and veterinary services. The Debtors also sell goods through their e-commerce platform with each of the Debtors’ banners having its own standalone website.
….as of the Petition Date, the Debtors employed approximately 1,300 individuals (the “Employees”), approximately 850 full-time and 450 part-time. Also, approximately 400 Employees were salaried and approximately 900 were hourly or commission-based."
Corporate Structure Chart
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The post Independent Pet Partners Holdings, LLC – Leading Pet Food Retailer (& TPG Portfolio Company) Files for Bankruptcy with $215mn in Liabilities; Will Liquidate More Than Half of 159 Stores, Reboot Sale Efforts in Respect Don’s and Kriser’s Natural Pet Lines appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.